Cost of finance - capital structure, Finance Basics

Cost of Finance - Capital Structure

This is the price the company pays to retail and acquire finance. To get finance a company will pay implicit costs that are commonly recognized as floatation costs. These contains: Underwriting commission, cost of printing a prospectus, Brokerage costs, Commission costs, legal fees, cost of printing share certificates, audit costs, advertising costs and so on.. For debt there is a legal fee, valuation costs that is Bankers commission, audit fees, security and so on. That costs are knocked off from:

i) The market value of shares whether these simply have been sold on a price above par value.

ii) For debt finance - from the par value of debt.

That is if flotation costs are specified per share then this will be deducted or knocked off from the market price per share. Whether they are specified for the net finance paid they are deducted from the total amount paid.

Posted Date: 1/30/2013 2:49:47 AM | Location : United States

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