Factors that influence the cost of finance, Finance Basics

Factors that Influence the Cost of Finance

1. Terms of reference - if short term, the cost is generally low and vice versa.

2. Economic conditions prevailing - If a company is operating under inflationary situation, such a company will pay high costs in so far like inflationary effect of finance will be passed on to the company.

3. Risk exposed to venture - if a company is operating under high risk conditions, so that a company will pay high costs to involve lenders to avail finance to it as the element of risk will be added on the cost of finance that may compound it.

4. Size of the business - A small company will find it not easy to raise finance and like will pay heavily in form of cost of finance to get debt from lenders.

5. Availability - Cost of finance or can say COF prices will also be influenced with the forces of demand and supply which low supply and low demand that will lead to high cost of finance.

6. Effects of taxation - Debt finance is cheaper with the amount equal to tax on interest and because of debt finance will entail a saving in cost of finance equivalent to tax on interest.

7. Nature of security - If protection given depreciates fast, so then this will compound implicit costs like costs of maintaining that protection.

8. Company's growth stage - Young companies generally pay less dividends whether case the cost of this finance will be relatively cheaper on the earlier stages of the company's progress.

Posted Date: 1/30/2013 2:55:27 AM | Location : United States







Related Discussions:- Factors that influence the cost of finance, Assignment Help, Ask Question on Factors that influence the cost of finance, Get Answer, Expert's Help, Factors that influence the cost of finance Discussions

Write discussion on Factors that influence the cost of finance
Your posts are moderated
Related Questions
Explain the term - Underwriting Underwriting is an agreement whereby underwriter promises to subscribe to a specified number of debentures or shares or a specified amount of

Compute the Payback Period - Example Cedes restriction has the following details of two (2) of the future production plans. Just one of these machines will be purchased and su

Conditions for Lease Finance Lease finance is ideal within the following circumstances: a) Whenever the asset depreciates faster. b) Whenever the asset is matter to obso

how to calculate cash flow? What components are required to calculate it ?

Acceptance Rule of Accounting Rate of Return or ARR ARR procedure will accept those projects whose ARR is higher rather than that set with management or with bank rate and it

Goals of firm's Credit Standards The goal of the firm's credit policy is to maximize the value of such firm. To complete this goal, the evaluation of investment in receivables

Question: Unsatisfactory control of spare parts in a particular mechanical workshop is resulting in high carrying costs for some items and high stock-out costs for others. A st

Stock Split and Reverse Split This is whereas a block of shares is broken down into smaller units or shares hence the number of ordinary shares rises and their respective par

Accounting Rate of Return Method or ARR This method utilizes accounting profits from financial status to assess the viability of investment proposal via diving the average inc

WHy does most interbank currency trading worldwide involve the US dollar?"