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
Restatement of investment appraisal In the following solution the tax allowances in relation to the initial outlay on equipment are evaluated separately. Other approaches are a

Why would an analyst use the Modified Du Pont system to calculate ROE when ROE may be calculated more simply? Explain. In fact, an analyst would not use the Modified Du Pont equ

discuss the applicability of operation cycle in avegetable growing business

Parity Conditions A parity condition defines the relative value of one country's currency to the other country's currency. The condition states how, for the example, difference

Value Index Numbers The value index number as described earlier is a combination index which combines price and quantity changes. Because of the difficulties experienced in pri

Explain the term- Maturities Debentures are sometimes grouped by length of time till maturity that existed on the date debenture was first issued.  Money Market Securities matu

Primary Market In an economy, at a given point of time, there will be people/entities called savers the surplus units, whose current income exceeds their current expenditure whi

Question 1 Cost of capital is the minimum rate of return required by a firm on its investment in order to provide the rate of return by its suppliers of capital. Explain the co

Price an Asian call option with on a stock with the initial stock price $50 and volatility 30$. The strike price of the option is $52. The time to maturity of the option is 3 month

Q. What are the financing methods? - The export transaction could be correlated to a bill of exchange. If this bill was established (guaranteed) by the bank it could be discoun