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Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.
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From Financial Management
Ke = Rf + β(Rm − Rf)
Rm − Rf = 14% − 6% = 8% Ke = 6% + 1.2 × 8% = 6% + 9.6% = 15.6%.
NI vs NOI:
Thus, NI supports more debt; NOI says capital structure is irrelevant.
WACC is the weighted average of costs of all long-term funds (debt, equity, preference). It represents the firm’s overall hurdle rate.
Projects should generally earn returns ≥ WACC to maintain or increase firm value.