Analysis of Corporate Finance at TESCO

Contents

Introduction3

Purpose of the Assignment4

Cost of Capital4

Problematic Area5

Summary of the Concept5

Structure & Cost of Capital6

Example8

Analyzing the Capital Structure of Tesco10

Company Evaluation and Cost of Capital10

Important Spheres of Cost of Capital11

Why Businesses are worried About Cost of Capital?11

Importance and Measurement of Cost of Capital12

Importance of Cost of Capital in Decision Making13

Importance of Cost of Capital13

Classification of Cost of Capital14

Computation of Cost of Capital15

Analyzing the Limitations of Cost of Capital16

Findings from the Cost of Capital18

Recommendations of Cost of Capital19

References20

Analysis of Corporate Finance at TESCO

Introduction

Investment decision plays an important role in deciding the future of a business. The growth of a business and its expansion is mainly depended on the way and the path it selects for the future therefore; all the businesses make an analysis prior to the investment. This analysis is carried out on the basis of investment they made in any project. Financing and investment decisions mostly include analysis of cost of capital and project analysis techniques.

The businesses are analyzed on the basis of future cash flows and their streams here, the cost which is associated with obtaining the capital for the business are important. The main advantage of analyzing the cost of capital is that an entity could decide the target capital structure for their future financing. Most of the companies are of the view to analyze the cost of capital in order to streamline their future financing decisions (Bhalla, 2002, p. 16).

The process of globalization changes the business principles and it creates a an environment of a number of positive aspects to the consumers and businesses. And now will stimulate competitiveness, forcing need for relentless pursuit of business excellence. In the field of finance is vital importance to know the cost of capital throughout the company, since the shortage of international resources and the high cost of financing national recommend each again a good efficiency in the implementation of enterprise resource.

The minimum rate of return that is acquired from these financing modes is accounted to as the cost of capital. The cost of capital includes providing weights to both the debt and equity financing that is first identified and then is multiplied with their costs. This is known, as the WACC (Weighted Average Cost of Capital), this provides a basis for assessing the projects for investment (Srivastava, 2005, p. 79).

Purpose of the Assignment

The purpose of this assignment is to analyze the cost of capital of an entity i.e. Tesco. Some of the important things which are covered in this paper are as follows:

Concept of cost of capital

Significance of the concept

Value of corporate finance in the financial management\

Example of corporate finance

Limitations and difficulties in the concept

Cost of Capital

A business always needs some capital to start and run their operations. There are number of sources through which a company can acquire funds. On the other hand, there are some techniques through which a company finds a perfect mix for financing. The term is purely used for financial investment associated with the ...