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Procter & Gamble Cost of Capital

Essay by   •  May 31, 2016  •  Case Study  •  464 Words (2 Pages)  •  603 Views

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1. P&G being the only company in the consumer–product business, this gives them the prevalence to compute favorably and continue offering their consumer-products to the market. Being the only company offering the products this gives them the monopoly in the whole market and business operations. The P&G has dominant market share that is very large and that covers large market of products that are offered in the market. Clorox market share is smaller compared to the P&G, the opportunities they have is the advantage of competing using the minimal risks that they incur with.

2. If the case happens where the cost of debt is slightly  lower than the reported case it shows that there is growth in the sales of the company products, these is because with the rapid growth in sales those products bought with credit are paid. There might be the case where there is mistakes with the information provided to the auditors or the accountants. Every investor wants to invest in a company that grows every day and day that is their shares grows day by day. The bonds invested have to grow also and be great.

3. The capital asset pricing model to client should not be sold, selling it confuses the clients on which model to follow in carrying out the process of investment, or to assess the best method to choose in investment. The investors value on the betas on the common stocks, this is because this gives them the particular and accurate estimate of what they should invest in. The reason why stocks are more risker than the bonds is because the stocks payment happens with whether the company has made profit, if it has not made any profit payment of stocks is very minimal as compared to case where there is payment whether profit or not.

4. The cost of debt-financed expansion rises with the sale of the stocks to finance the expansion because every stock sold is paid back and this increases the cost of financing expansion this is money to be paid back. Retained earnings is very crucial within the company, this helps increase the amount of earnings that the company has increasing company capital.

5. Internal rate for return for the NPV, is a crucial concern to any that cares about its performance the company has to evaluate the rate of return for financial performance of the organization. The organization has to internally evaluate every aspect of finance and see the return to be got from all the investment.

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