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

Calculate the future value of annuity, 1.  An investor is thinking of inves...

1.  An investor is thinking of investing in a recurring deposit scheme that offers an interest rate of 12% per annum. The investment that he is planning is for the higher education

Draw a diagram illustrating a straddle, Prices of Calls and Puts Options th...

Prices of Calls and Puts Options the shares of Marks & Spencer a) Explain carefully why the November calls are trading at higher prices than the September calls. b) Draw

Liabilities, Liabilities The company must take into account the nature ...

Liabilities The company must take into account the nature of its liabilities as well as its solvency position. Cash Flows: Besides the investment yields, money flows as paid

Role of investment banking in investment intermediaries, What is the role o...

What is the role of investment banking in investment intermediaries? Investment banks: These banks assist corporations or governments into the issue of new debt or equity

Determination of values price and volume, Determination of values The v...

Determination of values The values for which NPV turns into zero are found by calculating the break-even values for the selected variables. Once determined these give an indica

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

Explain monetary approach to exchange rate determination, Derive and illust...

Derive and illustrate the monetary approach to exchange rate determination. Answer: The monetary approach is related with the Chicago School of Economics.  It is relies on two

What, differentiate between pricing and allocative efficincy

differentiate between pricing and allocative efficincy

The standard contribution rate and actuarial liability, Question 1: Giv...

Question 1: Give the formulae for the Standard Contribution Rate (SCR) and Actuarial Liability (AL) for each of the following funding methods: a) Credit Unit Method b)

What is the purpose of the small business administration, 1. Discuss and de...

1. Discuss and describe in your own words the five Cs of credit analysis. 2. Why is it difficult for an entrepreneur to finance a startup with debt? What are the dangers of cre

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