Initial Investment Cost
The initial investment or money used to start a business. The funds, or capital, may come from a bank loan, a government grant, investors, or the business owner’s personal savings. The money is used to cover such startup costs as purchasing building, purchasing equipment and supplies, and hiring employees.
The term implies the amount of money projected to be collected during an accounting period. The estimated revenues are being calculated for a 5-year period of time.
Cost that has been forecast and which pertains to a given business purpose, product or project. An example of an estimated cost might be a forecast made for the expenses involved in servicing a product that is still under warranty after it has been sold to a consumer. The estimated expenses are being calculated for a 5-year period of time.
Equity Capitals (%)
Estimated as percentage, the term implies invested money that is not repaid to the investors in the normal course of business. It represents the risk capital staked by the owners through purchase of a company’s common stock.The value of equity capital is computed by estimating the current market value of everything owned by the company from which the total of all liabilities is subtracted. On the balance sheet of the company, equity capital is listed as stockholders’ equity or owners’ equity. Also called equity financing or share capital.
Borrowed Capitals / Debt Capital (%)
Estimated as percentage, in this case borrowed capital and debt capital are considered equal. Borrowed Capital is the part of a company’s capital employed that is (1) not equity capital, (2) earns a fixed rate of interest instead of dividends, and (3) must be repaid within a specified period, irrespective of the company’s financial position. It may be obtained from a bank or finance company as long-term loans, or from debt-equity investors in the form of debentures or preferred stock (preference shares) and is usually secured by a fixed and/or floating charge on the company’s assets. Debt capital includes short-term loans (such as overdraft).
The annualized cost of credit or debt-capital computed as the percentage ratio of interest to the principal. Each bank can determine its own interest rate on loans but, in practice, local rates are about the same from bank to bank. In general, interest rates rise in times of inflation, greater demand for credit, tight money supply, or due to higher reserve requirements for banks.
Discount Rate / WACC
Disount Rate and WACC are considered as one variable for the export of this report. Discount rate is the multiplier that converts anticipated returns from an investment project to their current market value (present value). It is always less than 1. WACC is an average representing the expected return on all of a company’s securities. Each source of capital, such as stocks, bonds, and other debt, is assigned a required rate of return, and then these required rates of return are weighted in proportion to the share each source of capital contributes to the company’s capital structure. For the report the assumption is being made that WACC and discount rate are the same.