Factors in Investment Analysis
Environmental, social and governance factors are collectively referred to by the acronym “ESG.” ESG integration is the practice of considering environmental, social, and governance factors in the investment process. Ideally, ESG integration should be implemented across all asset classes, including…
Beta and Cost of Capital of a Project
When estimating the cost of equity using the Capital Asset Pricing Model (CAPM), a reliable estimate of beta must be used. The beta for a company that is not publicly traded may be estimated using the pure-play method. In the…
Country Risk Premium
Beta by itself does not adequately capture a country’s risk for companies that are located in developing countries. To appropriately reflect these country risks, the cost of equity is usually adjusted by adding a country risk premium. The country risk…
Marginal Cost of Capital Schedule
The cost of the different sources of capital tends to change as a company raises additional capital, thereby resulting in a change in its weighted average cost of capital (WACC). The marginal cost of capital (MCC) schedule depicts this relationship…
Flotation Costs
Flotation costs are expenses that are incurred by a company during the process of raising additional capital. The value of these flotation costs is related to the amount and type of capital being raised. Whenever debt and preferred stock are…
Tools of Fiscal Policy
The government possesses two major fiscal tools for influencing the economy. These tools can be divided into spending tools and revenue tools. Spending tools refer to the overall government spending. On the other hand, revenue tools refer to taxes collected…
Implementation of Fiscal Policy
Fiscal policy refers to all the methods used by a government to influence the economy through tax rates and government expenditures. For example, a government may decide to reduce taxes. These moves should, in theory, stimulate the economy and thereby,…
Monetary Transmission Mechanism
The monetary transmission mechanism is the process where general economic conditions and asset prices are affected due to the monetary policy decisions. It occurs through interest rate channels that influence the costs of borrowing, the levels of investment, and aggregate…
Sources, Measurement and Sustainability of Economic Growth
The sustainability of economic growth is measured by the rate of increase in productive capacity and/or by the potential gross domestic product of the economy. Sources of Economic Growth The growth accounting equation emphasizes the main factors that determine growth….
Input Growth and Growth of Total Factor Productivity
Input Growth Already, we are well aware that the productive capacity and potential GDP of an economy increase due to the following two reasons: the accumulation of inputs such as capital, raw materials, and labor used in the production process;…
