Examine the difference between explicit and implicit cost, Financial Management

Assignment Help:

Examine the difference between Explicit Cost and Implicit Cost

Cost of capital can be either implicit cost or explicit. Explicit cost of any source of capital is the discount rate which equates the present value of cash inflows that are incremental to taking of the financing opportunity with present value of its incremental cash outlay. Hence the explicit cost of capital is the internal rate of return of cash flows of financing opportunity.

A series of each flows are associated with a method of financing. At the instance of acquisition of capital, cash inflow takes place followed by the subsequent cash outflows in the form, of interest payment, payment of dividends orrepayment of principal money. Hence, if a company issues 10 per cent perpetual debentures worth USD 10,00,000, there would be cash inflow to firm of the order of 10,00,00. This will be followed by annual cash outflow of USD. 1,00,000. The rate of discount which equates the present value of cash inflows with present value of cash outflows, would be explicit cost of capital.

 


Related Discussions:- Examine the difference between explicit and implicit cost

Explain financial management in brief, Q. Explain Financial Management in b...

Q. Explain Financial Management in brief? In the management of business firms, there are various well known functional areas such as Production Management, Materials Management

Full valuation approach, When a manager measures the interest ...

When a manager measures the interest rate exposure, he would be interested in analyzing the exposure to a set of changing interest rate. The process of r

Standard communication protocol used for the internet, Question: (a) W...

Question: (a) What is a computer virus? List and explain the different type of computer viruses? (b) List 4 steps which you can use to minimize the chances of being infec

Calculate the confidence interval of returns, Following are return expectat...

Following are return expectations on the S&P 500 index for the upcoming year with the corresponding probabilities: Expectation                                   Return

Mr.Manikanta, can u tell me the various approaches followed by FMCG Compani...

can u tell me the various approaches followed by FMCG Companies in test markets

Abnormal earnings valuation model, A technique for knowing a company's wort...

A technique for knowing a company's worth that is based on earnings and book value. It is also known as the residual income model, it seems at whether management's decisions cause

Personal finance chapter 9 workbook 2nd edition, answers for the personal f...

answers for the personal finance literacy 2nd edition workbook answers chapter 9(obtaining and protecting your credit)

Major proportion of the maximum financing requirement, Q. Major proportion ...

Q. Major proportion of the maximum financing requirement? Whether the credit terms themselves is able to be changed may depend upon the credit terms of competitors when set alo

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