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
Q. Explain about Net Working Capital Concept? Net Working Capital Concept: - Net working capital demotes to the difference among current assets and current liabilities. Current

Q. Investigate the following functions for both horizontal and vertical asymptotes, x and y-intercepts, and state the domain and range of each and where the function is increasing

How would you incorporate political risk into the capital budgeting process of foreign investment projects? One method is to adjust the cost of capital upward to imitate politi

Problem: i) Assume a firm buys a new tooling machine for Rs 2000,000, installation costs net of taxes are Rs 300,000. An existing asset has a book value of Rs 400,000 and the

7. Bill Peters is the investment officer of a $60 million pension fund. He has become concerned about the big price swings that have occurred lately in the fund’s fixed income sec

The amount by which the market price exceeds the conversion value or the investment value called the premium. When expressed as a percentage, it is given by,

Deficiency in Design - This exists when a control essential to meet the control objective is missing or an existing control isn't properly designed so that even if control operates

Workers interest in participation is also influenced by certain personnel or group characteristics. For example several research studies have shown that both very low and very high

Determination of spread Daily interest rate = 5.11/ 365 = 0.014% per day Variance of cash flows = 1000 × 1000 = $1000000 per day Transaction cost = $18 per transaction

Types of Mortgages 1. Traditional Mortgages 2. Non -  Traditional Mortgages 3.  Graduated-Payment Mortgages (GPMs) 4.  Pledged-Account Mortg