Calculation of cost of capital, Financial Management

Assignment Help:

Q. Calculation of Cost of Capital?

Calculation of Cost of Capital: - Calculation of cost of capital includes:

(A) Calculation of cost of specific sources of finance

(B) Calculation of weighted average cost of capital

Calculation of Cost of Specific Sources of Finance: - It comprises:

(1) Cost of Debt: - A company may perhaps increase the debt in a number of ways. It may perhaps borrow funds from the financial institutions or else public either in the form of public deposits or debentures for a specific period of time at a specified rate of interest. A debenture or bond perhaps issued at par at a discount or at a premium.

Debt may either be irredeemable or else redeemable after a certain period.

(i) Cost of Irredeemable Debt:-

  • Cost of Irredeemable Debt prior to tax :- Formula for computing cost of debt before tax is:

                  Kdb =  (I / NP )X 100           

Kdb = Cost of debt before tax

I = Annual Interest Charges

NP = Net Proceeds from the issue of Debt


Related Discussions:- Calculation of cost of capital

What are the drawbacks of benchmarking, What are the Drawbacks of benchmark...

What are the Drawbacks of benchmarking -  Benchmarking systems and programmes can be costly and time consuming -  Diversity and complexity of information can 'overload 'mana

Cost centre, a)   What are the pre-requisites of installation of responsibi...

a)   What are the pre-requisites of installation of responsibility accounting system? b)  Diffrence between 'cost centre' and 'profit centre'.

Why are trend analysis and industry comparison, Why are trend analysis and ...

Why are trend analysis and industry comparison important to financial ratio analysis? Trend analysis assists financial analysts and managers see whether a company's current fin

What are financial crises in financial markets, What are financial crises i...

What are financial crises in financial markets? Financial crises: Financial crises are described as major disruptions in financial markets which are characterised by shar

Calculation of before-tax return on capital, Calculation of before-tax retu...

Calculation of before-tax return on capital employed Total net before-tax cash flow = 122 + 143 + 187 + 78 = $530000 Total depreciation = 250000 - 5000 = $245000 Average

Show the advantages of irr method, Q. Show the Advantages of IRR Method? ...

Q. Show the Advantages of IRR Method? Advantages of IRR Method:- (i) Similar to the other DCF methods IRR methods as well take into consideration the time value of money.

Evaluate consolidated income statement, The consolidated income statement...

The consolidated income statement for AB Group for the year ended 30 June 2010: (all amounts in the workings are in $000, unless stated otherwise)

Introduction of just-in-time inventory management, Q. Introduction of just-...

Q. Introduction of just-in-time inventory management? It has already been observe that a reduction in inventory due to the introduction of just-in-time inventory management ca

State the term- financing decision, State the term- Financing Decision ...

State the term- Financing Decision The second financial decision is financing decision,which essentially addresses two questions: a. How much capital must be raised to fu

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd