--%>
Assignment Help - homework help

Describe the term cost of capital

Briefly describe the term cost of capital and also illustrate out its significance?

E

Expert

Verified

Cost of the capital is the rate of return that is minimum that has to be earned on investments in order to assure the investors of different types who are making investments in the company from debentures, shares and loans. It is employed in financial investment that refers to the cost of a company's funds or the shareholders return on the company's accessible deals. It is the necessary rate that a company should attain to cover the cost of generating funds in the market. Through seeing this only the investor invests the money in the company if the company is giving the necessary rate of return. It is a guideline to evaluate the profitability of various investments.

The significance of cost of capital is that it is employed to measure new project of company and permits the computations to be simple so that it has least return that investor expect for providing investment to the company. It has such significance in financial decision making. It really employed in managerial decision making in certain field like-

i) Decision on capital budgeting - It is employed to evaluate the investment proposal to select a project that satisfies return on investment.

ii) Employed in designing corporate financial structure - it is use employed to plan the market changeability and try to accomplish the economical capital structure for firm.

iii) Top management performance - It calculates the financial presentation of top executives. It engages the comparison of real profit of the projects and taken projects entire cost.

   Related Questions in Business Economics

  • Q : Categorization of economists for buying

    Assume that you bought a ton of gold in Santiago, and Chile for $450 per ounce and immediately sold all of this in Antwerp, Belgium for $480 per ounce. Therefore economists would categorize your movement as: (i) arbitrage. (ii) scalping. (iii) screening. (iv) speculat

    		•
  • Q : Government Pegged Currencies Question:

    Question: If a government pegs the value of its currency to another currency, the government must stand ready to i. _________________________ the "hard" currency to defend the pegged value of its own currency. ii.

    		•
  • Q : Elucidate The General Agreement of

    Elucidate The General Agreement of Tariffs and Trade (GATT)?

    		•
  • Q : How market system promotes

    How market system promotes technological improvements?

    		•
  • Q : Problem on Infrastructure The state

    The state legislature has voted to develop a grant-in-aid policy to try and induce local communities to devote more resources to improving their infrastructure. Town O = Has an operating budget of $2 million; currently spends a tot

    		•
  • Q : Real exchange rate Question: To

    Question: To determine the real exchange rate, what two pieces of information do you need in addition to the nominal exchange rate? Answer:

    Q : Major implication of invisible hand of

    The major implication of Adam Smith’s conception of an “invisible hand” was such that: (w) pursuit of individual self interest must be controlled. (x) most people lose sight of what’s good for society. (y) most

    		•
  • Q : The Economics Of Property And

    There are THREE questions in this assignment. The overall word length for this assignment should be in the range of 2,000-2,500 words. You may incur a penalty if you exceed the upper value. You must state the total number of words

    		•
  • Q : Illustrate Market Equilibrium of Supply

    Illustrate Market Equilibrium of Supply and Demand?

    		•
  • Q : Real rate of interest Question: Hubbard

    Question: Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?