In this article we will discuss about the opportunity and marginal cost of capital, with the help of suitable diagrams. Opportunity Cost of Capital: When an organization faces shortage of capital and it has to invest capital in more than one project, then the company will meet the problem by rationing the capital to projects […]

# Archive | Cost of Capital

## Top 4 Elements of Cost of Capital | Company

The following points highlight the top four elements of cost of capital. The elements are:- 1. Cost of Equity Capital (Ke) 2. Cost of Retained Earnings (K) 3. Cost of Preferred Capital (Kp) 4. Cost of Debt (Kd). Element # 1. Cost of Equity Capital (Ke): The funds required for the project are raised from […]

## Top 4 Significances of Cost of Capital | Financial Management

This article throws light upon the top four significances of cost of capital. The significances are: 1. As an Acceptance Criterion in Capital Budgeting 2. As a Determinant of Capital Mix in Capital Structure Decisions 3. As A Basis for Evaluating the Financial Performance 4. As a Basis for taking other Financial Decisions. Significance of […]

## 5 Major Problems in the Determination of Cost of Capital

This article throws light upon the five major problems in determination of cost of capital. The problems are: 1. Conceptual Controversies Regarding the Relationship between the Cost of Capital and the Capital Structure 2. Historic Cost and Future Cost 3. Problems in Computation of Cost of Equity 4. Problems in Computation of Cost of Retained […]

## Weighted Average Cost of Capital (Formula and Calculations)

After reading this article you will learn about about the Computation of Weighted Average Cost of Capital. Weighted average cost of capital is the average cost of the costs of various sources of financing. Weighted average cost of capital is also known as composite cost of capital, overall cost of capital or average cost of […]

## Cost of Equity Using Capital Asset Pricing Model (Calculation)

The value of an equity share is a function of cash inflows expected by the investors and the risk associated with the cash inflows. It is calculated by discounting the future stream of dividends at the required rate of return, called the capitalisation rote the required rate of return depends upon the element of risk […]

## Marginal Cost of Capital (Formula and Calculations)

After reading this article you will learn about the Computation of Marginal Cost of Capital. Sometimes, we may be required to calculate the cost of additional funds to be raised, called the marginal cost of capital. The marginal cost of capital is the weighted average cost of new capital calculated by using the marginal weights. […]

## Cost of Capital: 6 Types of Cost of Capital

This article throws light upon the six types of cost of capital. The types are: 1. Explicit Cost and Implicit Cost 2. Future Cost and Historical Cost 3. Specific Cost 4. Average Cost 5. Marginal Cost 6. Overall Cost of Capital. Type # 1. Explicit Cost and Implicit Cost: The explicit cost of any sources […]

## Cost of Capital: Definition, Importance and Aspects

After reading this article you will learn about Cost of Capital:- 1. Definitions and Concept of Cost of Capital 2. Relevance, Significance and Importance of Cost of Capital 3. Aspects. Definitions and Concept of Cost of Capital: Cost of Capital may be defined according to the following two terms: (a) Under operational terms and (b) […]

## Preference Share Capital (With Formula)

The procedure for measuring the cost of preference share capital creates some conceptual problems. We have seen from the previous explanations that in case of a debt/borrowing, there is a legal obligation to pay interest at a specified fixed rate while in case of a preference share, there is no such legal obligation. It may […]