--%>
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 : Elucidate the growth record of the

    Elucidate the growth record of the United States?

    		•
  • Q : Characteristics of Perfectly

    Perfect competition is characterized by all of the following except w) heavy advertising by individual sellers. x) homogeneous products. y) sellers are price takers. z) a horizontal demand curve for individual sellers.

    Q : What do you mean by Linkages What do

    What do you mean by Linkages?

    		•
  • Q : Market Apparent program For the

    For the question below, utilize the given information. The market for gizmos is competitive, with an increasing sloping supply curve and a downward sloping demand curve. With no govt. intervention, the equilibrium price is $25 and the equilibrium quantity is 10,000 gi

    		•
  • Q : What is an inverse relationship Briefly

    Briefly explain the use of graphs as a way to present economic relationships. What is an inverse relationship?

    		•
  • Q : Introduction of the term Control

    Give a brief introduction of the term Control Principle?

    		•
  • Q : Describe World Trade Organization

    Describe World Trade Organization (WTO)?

    		•
  • Q : Production function for the game

    Question Can you describe what the production function for the game looks like? (How are labour, capital and resources combined? Are there constant, increasing or decreasing returns to scale?) Answer

    Q : Depreciation of the euro change the

    If the European euro declines in value (depreciates) in the foreign exchange market, would it be easier or harder for the French to sell their wine in the United States?  Suppose you were planning a trip to Paris.  How would the depreciation of the euro chan

    		•
  • Q : Meaning of Modigliani-Miller Briefly

    Briefly describe the meaning of Modigliani- Miller (M and M) approach?

    		•