Finance Essay Example | Topics and Well Written Essays - 2250 words - 6

Finance - Essay Example Therefore, for those organizations, the cost of capital can be measured through a weighted average method that can be termed as weighted average cost capital. In specific, the execution of cost of capital is due to figure out the hurdle rate that the companies come across with and are supposed to overcome in order to generate earnings. This method is widely exploited during the process of capital budgeting to identify the risk or favorable scenario for the company to proceed with a concerned project (Droms and Wright, 2010, pp. 31-34). From the financer’s standpoint, the investors are looking for respective profit over the company’s existing securities portfolio, which is used to assess a companys new project, because it is expected return that the investor is anticipated for providing funds, with the lowest rate of return, thereby establishing a benchmark that should be adhered by the new project (Pedell, 2006, pp. 26-31). The main perspective of this assignment is to analyze the cost of capital, which often known as Weighted Average Cost of Capital (WACC) of the chosen organization. The company that has been chosen for the same analysis is Tesco Plc. Tesco Plc is a British based multinational grocery and general merchandise retailer with its headquartering located in England, United Kingdom (UK). Tesco Plc is known as the second largest retailer in the world after the Wall-Mart. The company earned net revenue amounting to  £70.894 billion in the year 2013 with net income amounting to  £124.0 million in the same year. The method which has been used for computing the WACC of the selected company comprises on two different aspects, which are cost of debt and cost of equity. The formula of WACC institutionalized to cumulate cost of debt and cost of equity by applying relevant amount of weights with these elements. The justification of this particular method lies in the fact that this method has the tendency to analyze the cost of capital of the