Determine the key factor affecting financing costs, Financial Management

Assignment Help:

Determine The key factor affecting financing Costs

Because cost of capital is measured under the assumption that both firm's asset structure and its capital (financial) structure are fixed, the only factor which affects various specific costs of financing is the supply and demand forces operating in the market for long-term funds. Or we can say that as a firm raises long-term funds at different points in time, the only factor affecting their cost is riskless cost of the particular type of financing. Regardless of the kind of financing used, the below relationship should prevail:

kj = rj + b + f

Where

kj = the specific cost of the various types of long-term financing,

rj = the riskless cost of the given type of financing, j

b = the business risk premium

f = the financial risk premium

Equation indicates that cost of each specific type of capital depends on riskless cost of that type of funds, business risk of the firm and financial risk of the firm.

 


Related Discussions:- Determine the key factor affecting financing costs

Ffnace management, What is the monthly interest rate if the lease payments ...

What is the monthly interest rate if the lease payments are $24,000 per month for 24 months. The total value is $420,000

Credit spreads and the valuation of non-treasury securities, It is not easy...

It is not easy to determine the theoretical value of non-treasury securities. However, we can use the treasury spot rate for the valuation of non-treasury security.

Why is the replacement value of assets method, Why is the replacement value...

Why is the replacement value of assets method not generally used to value complete businesses? The replacement value of assets method isn't often applied to entire business val

What is accumulated depreciation, Q. What is Accumulated Depreciation? ...

Q. What is Accumulated Depreciation? Accumulated Depreciation - Total DEPRECIATION pertaining to an ASSET or group of assetsfrom the time the assets were placed in services unt

Find out covariance between the two stocks, The stocks of Microsoft and Ap...

The stocks of Microsoft and Apple have a correlation coefficient of 0.6.  The variance of Microsoft stock is 0.4 and the variance of Apple stock is 0.3.  What is the covariance bet

Advanced financial management, QUESTION 1 [25 marks] Xelo Ltd, whose curren...

QUESTION 1 [25 marks] Xelo Ltd, whose current sales consist of fixed operating costs of R140 000 and variable operating costs equal to 22% of sales, has made the following two sale

Weighted average cost of capital, Weighted Average Cost of Capital Wei...

Weighted Average Cost of Capital Weighted average cost of capital is the average cost of the costs of several sources of financing. Weighted average cost of capital is also kn

Cash flow valuation technique, Cash Flow Valuation Technique The aim o...

Cash Flow Valuation Technique The aim of this research is to empirically enquire into how to value a company using discounted cash flow valuation technique within its real lif

Objective of the business, Q. Objective of the business? Working capita...

Q. Objective of the business? Working capital is needed for the following purposes For the purpose of the raw material, components and spares To pay the Wages and the sal

Leverage, evaluate the importance of leverage in financial management of a ...

evaluate the importance of leverage in financial management of a small scale company

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