Cost of capital, Financial Management

Assignment Help:

COST OF CAPITAL

A project's Cost of Capital is the smallest amount of acceptable rate of return/required rate of return on funds committed to the project. It is a compensation for time and risk in the use of capital by the project.  Since the investment projects may vary in risk, each one of them will have its own exclusive cost of capital.

The Firm represents the aggregate of investment projects undertaken by it. so, the firm's Cost of Capital will be the overall required rate of return on the aggregate of the investment projects.

  • In NPV method, the Cost of Capital is the discount rate used for evaluating the desirability of an investment project.
  • In IRR method, Cost of Capital is the smallest amount of required rate of  Return on an investment project. It is also known as the cut off or forget rate or the Hurdle rate.
  • The Cost of Capital is the smallest amount of required rate of return on the investment project. It is also known as the cut off or target rate or the hurdle rate.
  • The Cost of Capital is the smallest amount required rate of return on the investment project that keeps the present wealth of shareholders unchanged.

Related Discussions:- Cost of capital

Steps in process of securitization, Process The process of Secu...

Process The process of Securitization involves the following steps: Transfer of assets by the originator (person holding the assets) to an entity (comp

Working capital mini qs, Q. Working capital mini Qs? During January 20X...

Q. Working capital mini Qs? During January 20X4, Gazza Ltd made credit sales of £30,000 that have a 25% mark up. It also purchased £20,000 of inventories on credit. Calculat

Cost of capital, AThe Nu-Nu Brothers Inc. (NNBI) has the following capital ...

AThe Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equity 60% NNBI''''s expected net incom

Analysis of operations, You must analyze the operating performance of your ...

You must analyze the operating performance of your company. You will use ratio analysis and primarily using Liquidity, Profitability and Working Capital ratios. You will use a g

Working capital financing plan for company implementation, What is the most...

What is the most conservative type of working capital financing plan a company could implement?  Explain. An all equity capital structure would be the mainly conservative type

Explain zero coupon bonds, Explain Zero coupon bonds The bonds that are...

Explain Zero coupon bonds The bonds that are sold at a discount from face value and do not pay any coupon interest over their life are known as Zero coupon bonds. At maturity t

Major linen purchase on open account, that the business has far fewer linen...

that the business has far fewer linens than it needs, so he makes a major linen purchase on open account. Which of the following terms refers to the fact that partners Ma and Runni

Pvif, how do we get the pvif of a perpetuity

how do we get the pvif of a perpetuity

Is depreciation the loss of value of fixed assets, Is depreciation the loss...

Is depreciation the loss of value of fixed assets No. An operative (and not a pseudo-philosophical) explanation of depreciation might be: it is a number that allows us to save

Financial information, A)  What are the statements of financial information...

A)  What are the statements of financial information? Talk about two items from each. B)   Describe statement of changes in financial positions, with an example.

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