Cost Of Capital
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UNIT-2 COST OF CAPITAL
Cost of capital The concept of cost of capital budgeting is concerned with cost of capital . The concept of cost of capital is significant not only for capital budgeting it is also indispensable in other areas of financial management. In operational terms the cost of capital is the rate of return of a firm must earn on its investments so that market value of the concern remain unchanged.
DEFINITION “ Cost of capital is the minimum required rate of earning or the cut off rate for capital expenditure.” Soloman Ezra
Importance of the concept of cost of capital (i) Designing the optimal Capital structure (ii) Assisting in investment decisions (iii) Helpful in evaluation of expansion projects (iv) Rational allocation of national resources
MEASUREMENT OF COST OF CAPITAL OR COMPONENT 1. Debts 2. Preference share capital 3. Equity Share capital 4. Retained earning 5. Depreciation fund 6. Short – term credit
Cost of debts A company obtains
Cost of capital The concept of cost of capital budgeting is concerned with cost of capital . The concept of cost of capital is significant not only for capital budgeting it is also indispensable in other areas of financial management. In operational terms the cost of capital is the rate of return of a firm must earn on its investments so that market value of the concern remain unchanged.
DEFINITION “ Cost of capital is the minimum required rate of earning or the cut off rate for capital expenditure.” Soloman Ezra
Importance of the concept of cost of capital (i) Designing the optimal Capital structure (ii) Assisting in investment decisions (iii) Helpful in evaluation of expansion projects (iv) Rational allocation of national resources
MEASUREMENT OF COST OF CAPITAL OR COMPONENT 1. Debts 2. Preference share capital 3. Equity Share capital 4. Retained earning 5. Depreciation fund 6. Short – term credit
Cost of debts A company obtains
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