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Here, capex definition should not include additional investment on new equipment. However, maintenance cost can be added. Dividends will be the base dividend that the company intends to distribute to its share holders. Current portion of long term debt will be the minimum debt that the company needs to pay in order to not default.
The cost of debt is computed by taking the rate on a risk-free bond whose duration matches the term structure of the corporate debt, then adding a default premium. This default premium will rise as the amount of debt increases (since, all other things being equal, the risk rises as the cost of debt rises).
The costs are capitalized, reflected in the balance sheet as a contra long-term liability, and amortized using the effective interest method or over the finite life of the underlying debt instrument, if below de minimus. [1]
DCF valuation formula, where the value of the firm or project is the sum of its forecasted free cash flows discounted to the present using the weighted average cost of capital, i.e. cost of equity and cost of debt, with the former (often) derived using the CAPM.
The Bond Yield Plus Risk Premium (BYPRP), adds a subjective risk premium to the firm's long-term debt interest rate. The cost of equity can be calculated using the discounted residual income model to estimate the market implied cost-of-capital, and the cost of equity can then be backed-out. [1]
Increasing the percentage of short-term debt can enhance a firm's financial flexibility, since the borrower's commitment to pay interest is for a shorter period of time. But short-term debt also exposes the firm to greater refinancing risk. Therefore, as the percentage of short-term debt in a firm's capital structure increases, equity holders ...
Debt Ceiling 2023: Wall Street Traders Pen Letter to Yellen Warning of ‘Costly’ and ‘Long-Term’ Implications if US Defaults YaŃ‘l Bizouati-Kennedy May 11, 2023 at 9:39 AM
Liquidity ratios measure the availability of cash to pay debt. [3] Efficiency (activity) ratios measure how quickly a firm converts non-cash assets to cash assets. [4] Debt ratios measure the firm's ability to repay long-term debt. [5] Market ratios measure investor response to owning a company's stock and also the cost of issuing stock. [6]