What is cost of Capital? | What is your perspective about cost of capital?

-

Cost of capital is an integral part of investment decision as it is used to measure the worth of investment proposal by business concern. It is uses as discount rate in determining the present value of future cash flows associated with capital projects. Cost of capital is also called as cut off rate, target rate, hurdle rate and required rate of return. When forms are using different sources of finance, the finance manager must take careful decision with regard to the cost of capital, because it is closely associated with the value of the firm and earning capacity of the firm.

Classification of cost of capital.

Explicit and implicit cost

Average and marginal cost

Historical and future cost

Specific and combined cost


Explicit and implicit cost

The cost of capital may be explicit or implicit on the basis of the consumption of the capital.

Explicit cost is the rate that the firm pays to procure financing. 

Implicit cost is the rate of return associated with the best investment opportunity for the firm and its shareholders that will be forgone if he projects presently under consideration by the firm were accepted.

Average and marginal Cost

Average cost of capital is the weighted average cost of each competent of capital employed by the company. It considers weighted average cost of all kinds of financing such as equity, debt and retained earning etc.

Marginal cost is the weighted average cost of new finance raised by the company. It is the additional cost of capital when the company goes for further raising of finance. 

Historical & Future Cost

Historical cost is the cost which has already been incurred for financing particular project. It is based on actual cost incurred in the previous project.

Future cost is the expected cost of financing in the proposed project, Expected cost is calculated on the basis of previous experience.

Specific and combine cost

The cost of each sources of capital such as equity, debt, retained earnings and loan is called as specific cost of capital. It is used to understand the total cost associated with the total finance of the firm.

The combined cost of capital is the combination of all the sources of capital. It is also called as overall cost of capital. It is used to understand the total cost associated with total finance of the firm.


Comments

Post a Comment

Popular posts from this blog

You should know the three categories of employee’s in an organization. “HR Perspective”

-
Image
  Image Credit: snacknation.com Today most of people wish to get their dream job, some people get and some people does not. Getting a job is the initiate stage in the professional life for a fresher and continuing in the job for long in the company is the subject matter for performance at job. There are lots of people who get their desire job or selected in desired company or selected for desired positions but they quit the job during probation period or within one year. People quit the job due to organizational culture, work pressure, company work style, company policy and procedure, Due to reporting manager way to talk and behave & reaction, salary and career progression in the company, There are three Categories of employee’s in an organization. First Categories: This category of employees think that they will work as much as they are paid. These types of employees are self-willed nature. Whether they work they behave and programmed their mind accordingly. They are very prof...
Read more

Secret of peace and pleasure

-
Image
Peace and Pleasure both words have different- different meanings. Today everyone wants to get peace and pleasure in one's life. But really there are few people who have peace and pleasure in their life.  Some people understand that peace and pleasure means to be rich and eat tasty food, wear high priced clothes, and live in a good house and have more and more facilities. But these described things will never give you peace and pleasure in your mind. These can give peace and pleasure for a short time.  There are some people who plan to make trips to see many memorable or beautiful places or where everyone wishes to go. There are some types of people who wish to earn more and more money and live a peaceful life. Can money give a peaceful life? Answer will be no, because it can give a short time. Peace and please can be felt with continuous practice of mind to avoid avarice, sadness, anger, repent, thinking  about past and future.  Peace and pleasure can be felt though ...
Read more

Human Capital

-
I think many of us are working in companies or many of us are studding to make  our carrier for business or get a reputed job in any company. A company is an artificial person, it has an entity, People know it's by logo, common seal are visible mark by which people know the company. A company has many types of capital one of them are employees. Employees  are capital of the company, so it is called Human capital , Human capital is the intellectual capital among all capital of the company. because they have knowledge,   power of analyzing experience and managing capabilities,    
Read more

“HR Perspective” Growing green programs in the organizations.

-
Image
  Getting employees involved in green effort is growing green, such effort may affect the organizational corporate image with customers, employees, and client and through business community in the area.  These programs can help on HR Policies for recycling, creating less waste, and pollution, reducing lighting and power uses and can be other means also. There are lots of industries make policies and system and arrange training for environmental green program. Through this green program they educate the worker how reduce the waste and keep our environment clean.   There are many organization which develop environment specialist who looks for employee’s health, quality, and safety and manage environmental issue at construction project site. HR manager has a key role in this program, He/she can communicate with employees and manager and enforce them to take actively part in grow green program, it is organizational requirement. Customer Service and Quality linked to grow...
Read more

Ayurveda: The Science of Life and Longevity.

-
Image
Munna Singh- Author Reprogramming of mind and The Art of Living of Life. The seed of dieses is always present in our body, perhaps we don’t know about this. The seed of diseases daily is getting produced in our body and getting eliminated through healing. When this seed of dieses not eliminated completely through healing in our body then it starts to spread and takes its shapes into plants and later it becomes the tree and that tree produces many seeds again, it is reality of dieses.  Our health is based on balancing the body function. Any function of body becomes disbalance, our body starts to give a signal of disbalance of body function, that signal is called dieses. There are many reasons that accelerate the growth of dieses seed in human body are our lifestyle, food, anxiety, stress level and many more. For example: If Body temperature goes high, it gives signal as fever and same opposite give signal as cold or feeling cold. Same BP (Blood pressure) high and low is the signal o...
Read more

Intraday Trading is emerging very rapidly amid youngsters.

-
Image
Today many youngsters are heading toward stock market either for investment purpose or intraday trading. It has been seen through datasheet, the courage of intraday trading among youngster are increasing. Many people are looking to make their career in stock market. The reason behind, it is smart way to earn money in short time. But it is not so easy for everyone to make money, there is also a high risk of capital loss. It is also a way where an individual can make double his trading capital in few minutes or hours, and can lost all his trading capital in few minus or hours. It’s all depends on individuals knowledge about trading. “Expert says that only 5% traders make profit and 95% make loss. Five percent of traders take out money of Ninety percent of traders”. Intraday trading is basically for buying and selling of financial instruments like stocks, currencies, cryptocurrency, commodities and indices in same day in stipulated period of time. Besides all option trading has become ver...
Read more

What is Your Point of view about Organized Planning?

-
Image
                                    Image Credit: guidebook.com Organized planning is a process which shows you the path to go and indicate you where you are, and guide you what you have to do, as well as its guide you when you have to complete the task. What percentage of task have you completed and percentage of task not completed? Which task needs more concentration? To follow the organized plan you have to possess below headlines to make successful of your plan:- ⦁ Punctual: you will have to be punctual on your time and work. ⦁ Disciplined: you have to maintain disciplined in any field of life. ⦁ Commitment: you have to commit yourself for your goal or any purpose in your life. ⦁ Determination: you will have to be determined that you will achieve the goal at any rate. ⦁ Hope: - Hope is the last thing which alive all dead wishes. Always keep hope that one you will be suc...
Read more

Deserving employees are getting cornered amid Corporates Internal Politics.

-
Image
 Today’s modern age there is no one who cares for you basically in professional life. if you think that someone is thinking about your career within organization it is impulsion and rarely happens like this however how much you giving productivity is another subject.    Today’s most of people’s first choice to do a job after completing their education. There are very few who plan for startup. Most of people prefer to get employed in any factory/ organization to earn money. Everyone needs money without it we cannot imagine a smooth life. We need many things in our life on daily basis. We cannot manage the single one day without money. Money is the reasons that drive us for doing a job or opting for business. There are many perceptions among the people about good or bad job or people categories good or bad job. People opted the job as per their qualification, need or situation. Because job is the quickest way to earn the money. Doing a job is not easy for everyone, because ...
Read more

What does Financial Freedom means to you?

-
Image
 Image Credit: etmoney.com Financial freedom means , you  should have  purchasing power, in other words we can say that you have freedom to spend your money without looking back at your bank account. Most of us work whole the life but when we analyze what is saving to us, we get amazed there is noting cash at hand or cash at bank. This happens with most of people , they earn the money whole the life and at the time of retirement they have noting to spend in their life currently  and for further.  This does not relate with only who earn few but also who earn more. there are lots of people who think that there a only job can  be source of income. but there are lot of sources are available for earning. To get financial freedom in the life who have to think for alternate source of income otherwise a job can give financial freedom for max six months to someone and not everyone. There are mainly three sources of income: 1. Job 2. Investment 3. Business. Most of p...
Read more

You can be your best version at workplace “HR perspective”.

-
Image
                          Image Credit: Content.mycareersfuture.gov.sg Today most of employees want to become performer at workplace and get praise by peers, by their team leaders and by Managers or to get best performance appraisal feedback by their reporting Managers or to get promotion in the organization. To grow in an organization, years of experience does not matter, matter your sincerity for assigned work, punctuality at workplace, time line of response and many more. Skills impact on overall performance of an employee. One of them is leadership. Leadership skill is very essential for an employee to grow quickly in the organization. A leader leads the employees, motivate the employees, inspire the employees, empower the team, and share organizational mission with employees. A leadership quality always praised by everyone. Lots of example we can find within the organization and outside the organization. To ...
Read more