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
Head Office and Branch or Subsidiary MNC has diverse operations set up in dissimilar geographical locations. The HQ acts like the principal and the subsidiary like an agent he

What is Holding Period Return/Return Holding period yield (HPY) measures the total return from an investment during a given time period in which asset is held by the investo

Based on the example in Lesson 2, compute your quarterly interest for three years if you deposit $500 at 8 percent, compounded quarterly. Remember to divide the 8 percent by 4 to g

How is finance related to the disciplines of accounting and economics? Financial management is necessarily a combination of economics and accounting. First, financial managers


Significant Features of Partnership 1) The capital is contributed by the partners and no appeal is made to the public. 2) Like the sole proprietorship, a partnership has a l


Dividend yield or Gordon's Model This model is used to determine the cost of various capital components in particular: Cost of equity - K e Cost of preferenc

Problem: Cash Flow Analysis For the attached Gantt chart, the following information is available: Invoices are sent at the end of each month. Mark up is 20% on each invoi

How are earnings calculated for the Pe ratio?