Determination of explicit cost of capital
Approach of determination of explicit cost of capital is similar to the one used to ascertain IRR, with one difference, in case of computation of IRR, cash outflows occur at the beginning followed by subsequent cash inflows while in the computation of the IRR, cash outflows occur at the beginning followed by subsequent cash inflows, whereas in computation of explicit cost of capital, cash inflow takes place at the beginning followed by a series of cash inflow subsequently.
Formula used to compute the explicit cost of capital (C) is: