Specific cost of capital, Financial Management

Specific Cost of Capital

When the Cost of every source of capital is individually calculated, it is known as Specific Cost of Capital example Cost of equity, cost of debt, etc.  For the purpose of capital budgeting decisions, benefits from proposed project are evaluated on an after tax basis.  Cost of Capital have three components:

1)The risk-less cost of the particular type of financing (r )

 2)The business risk premium (b) and

3)The financial risk premium (f)

The specific cost will point out the relative cost of pursuing one type of financing rather than another. From the analysis of Capital budgeting decisions, the long term sources of funds are appropriate as they constitute most important source of financing of fixed assets.  The exact costs have to be calculated for  (1) Long term Debt (including debentures) (2) Preference shares (3) Equity capital and (4) Retained earnings.

Posted Date: 10/15/2012 9:30:44 AM | Location : United States







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

Write discussion on Specific cost of capital
Your posts are moderated
Related Questions
A portfolio manager would never prefer to make investment decision based on just one set of assumptions. Instead, he would evaluate the outcome of the selected st

Assemble all other inputs/assumptions based on the past data. Use your best judgment to have the most reasonable estimates. Tasks 1. Prepare an Excel spreadsheet containi

$7000 are invested at 5% per annum compound interest compounded yearly.  What would be the amount after 20 years? Solution Here i = 0.05, P = 7000, and n = 20. Putting it i

Describe your role in managing a discrete assignment

Determine about the synergistic effect When two or more companies join together there must be a synergistic effect. Synergy is when 2 + 2 = 5. Net present value of the two comp

State the term- adequate working capital If a firm doesn't have adequate working capital, that is, it doesn't invest sufficient funds in current assets, it can become illiquid

Rationale for Mergers Many of the motives behind mergers of firms are discussed hereunder: Growth Growth is the most general and important motive for mergers. Merging f

What are the Types of Hedge Funds? Please provide me report on Types of Hedge Funds.

Typically, there exist two types of bids in the treasury auction process. They are: Competitive bid and non-competitive bid. A non-competitiv

FUNCTIONS / RESPONSIBILITIES / CHALLENGES FACING THE FINANCE MANAGER Today's finance manager is facing a lot of challenges, which are the direct result of the dynamic growth in