Fundamentals of Finance Essay Example | Topics and Well Written Essays - 1000 words

Fundamentals of Finance - Essay Example Fundamentals of Finance Retained earnings means the amount of profit held by an organization, and that should be utilized for meeting the several requirements, except the payment of dividend. Break even point is a point at which the total cost and income equals, so at this point there should not be the question of profit or loss arises. So, the exhaustion of retained earnings also strongly related to the fundamental financing decisions and its implications. Break Even Point (BEP Output) in Units= Fixed Expenses/Contribution per unit.(C) Assume, fixed expenses (F) costs  £60000; selling price per unit  £15; variable cost per unit  £10. Therefore, BEP= F/C per unit. Contribution (in unit) = Selling price per unit_ Variable cost per unit. i.e.  £15_ £10=5 BEP=  £60000/5= 12000 Units. The composite of overall cost of capital of a firm is considered as the weighted average cost of several sources of funds. Weights are taken as the proportion of each source of funds in the overall capital structure of an enterprise. WACC is computed through a step by step process, such as Calculating the cost of specific sources of funds, then multiplying the cost of each source by its proportion in capital structure, and adding the weighted component costs. That is, K0= K1 W1 + K2 W2+†¦Ã¢â‚¬ ¦; here, K1, K2 etc. are component costs and W1, W2 etc. are weights. Assume total number of equity shares is 1000 shares,  £35/share,  £35000 is the equity capital or NP. While Dividend is  £1750, i.e. 5% of  £35000, and the cash dividend is  £3.25/ share, i.e. 1000 shares @ £3.25/ share is amounted to  £3250.