The president of a software development company was contemplating how to reward its investors. Since the company's inception 10 years previously, the company had not paid full dividends to shareholders. The president was anxious to provide some return for the investments made, but he was convinced that he could maximize shareholder return if he could position the company to take advantage of the tremendous industry growth. He also wonders how much capital he will need, and where to obtain it.
Two managers attempt to compute the cost of capital for B C Telecom Inc. They discuss hurdle rates, dividend yields, stock issues, and borrowing history.
The vice president of finance at Rocky Mountain High Ski Resort Inc. (RMH) was examining the alternatives for financing a proposed $25 million expansion. The well-known Western Canadian all-season resort planned to add several new runs, additional snowmaking capacity, another high-speed quad chair lift, a 700-seat restaurant, a new retail ski equipment store, and upgrades to the existing infrastructure. The directors of RMH were scheduled to meet in two weeks to approve both the proposed expansion and financing plans.
An entrepreneur who is anxious to start a business manufacturing a pasta server requires funds to finance the acquisition of equipment and working capital. A venture capital investor demands a cash budget for the first year of business as well as projected financial statements.