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

Determine about the systems based audit, Determine about the Systems based ...

Determine about the Systems based audit Systems based audit is useful as it would help identify risks within the processes in an organisation and review how adequate the contr

Define capital rationing, What is capital rationing?  Should a firm practic...

What is capital rationing?  Should a firm practice capital rationing?  Why? The term Capital rationing is the practice of setting dollar limits on what will be invested in new ca

Fund managers or the asset management company, Fund Managers or the Asset M...

Fund Managers or the Asset Management Company (amc) The role of fund managers is highly significant in the mutual fund operations. So far, this role is being played by the Mutu

Bonds with warrants, Bonds with Warrants: Warrants are usually attached...

Bonds with Warrants: Warrants are usually attached with the bonds or preference shares to attract the investor. The objective is to induce the potential investors to subscribe

Advanced Accounting, Balance Sheets Peony Ltd. Aster Ltd. ...

Balance Sheets Peony Ltd. Aster Ltd. Assets: Cash $ 62,500 $ 25,000 Accounts receivable 187,500 200,000 Inventori

Cvp, Info on applying CVP to product mix limiting factors

Info on applying CVP to product mix limiting factors

Volume of issues of central and state government securities, Volume of Issu...

Volume of Issues of Central and State Government Securities The growth of government securities market in India and the investor response to the government bond issues can be k

Write down budget constraint - budget line, You have $20 to spend on high q...

You have $20 to spend on high quality pens and low quality pens. High quality pens cost $5 each and low quality pens cost $2 each.    (a) Suppose that you will spend your entire

Explain why the company would probably not issue $1 million, Refer to the B...

Refer to the Bulldog battery company's cash budget in Table 18-7.  Explain why the company would probably not issue $1 million worth of new common stock in January to avoid all sho

Corporate bonds, Corporate bonds are debt securities issued by privat...

Corporate bonds are debt securities issued by private and public corporations. These bonds are issued to meet specific requirements like building a new plant, pur

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