Basic assumptions of cost of capital, Financial Management

Basic Assumptions of Cost of Capital

The Cost of Capital is a dynamic concept affected by a multiplicity of economic and firm factors and assumes the following assumptions relating to taxes and risk:

1)       Business Risk:  It defines the risk of the inability of the firm to cover its operating costs. This cost is assumed to be unchanged that is the firm's acceptance of a given project does not affect its ability to meet operating costs.

2)       Financial Risk:  It defines the risk of the inability of the firm to cover the required financial obligations (interests, lease payments or preference dividend) is assumed to be unchanged.

3)       After Tax Costs:  They are considered applicable. The Cost of Capital is calculated on an after tax basis.

4)       Capital Structure: The firm's financial structure is assumed to stay fixed.

Posted Date: 10/15/2012 9:28:20 AM | Location : United States

Related Discussions:- Basic assumptions of cost of capital, Assignment Help, Ask Question on Basic assumptions of cost of capital, Get Answer, Expert's Help, Basic assumptions of cost of capital Discussions

Write discussion on Basic assumptions of cost of capital
Your posts are moderated
Related Questions
Q. What is the significance of Working Capital? Meaning of Working Capital: - Working capital management is an significant aspect of financial management. In business money is

Question 1: (a) Highlight the main benefits which Mauritius can reap from a strategy of financial globalization. (b) What are the problems with the internationalization of

It shows the date and corresponding prices at which the issuer can call back bonds. The issuer pays higher premium over the par value of the bond if the bond is c


What are the main flaws of the profit maximisation criterion The main technical flaws of this criterion are i) ambiguity, ii) quality of benefits and iii) timing of be

A simple passive strategy involves building a portfolio and holding it through time. The coupons as well as the proceeds of matured bonds are just reinvested in new iss

What are multinational corporations (MNCs) and what economic roles do they play? A multinational corporation (MNC) can be described as a business firm incorporated in one count

Q. Importance of Capital Budgeting Decision? 1. Such Decision affect the profitability of the Firm: - Capital Budgeting decision influences the long-term profitability of a fir

Who owns a credit union? Explain. Credit unions are owned by their members.  When credit union members place money in their credit union, they aren't technically "depositing"

what is Substantive tests or transactions based auditing Tests to attain audit evidence to detect material misstatements in financial statements. Using analytical procedures an