Tag Archives | Capital Budgeting

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 […]

Top 3 Methods for Computation of Cost of Debt

This article throws light upon the top three methods for computation of cost of debt. The methods are: 1. Debt Issued at Par 2. Debt Issued at a Premium or at a Discount 3. Cost of Redeemable Debt. Method # 1. Debt Issued at Par: The method of computation for ascertaining cost of debt which […]

Capital Budgeting: Importance, Types and Planning Period

After reading this article you will learn about Capital Budgeting:- 1. Importance of Capital Budgeting 2. Types of Capital Budgeting 3. Planning Period. Importance of Capital Budgeting: Capital budgeting decisions have given the primary importance in financial de­cision-making since they are the most crucial and critical business decisions and they have significant impact on the […]

Top 2 Sources of Cost of Equity Capital

This article throws light upon the top two sources of cost of equity capital. The sources are: 1. New Issues 2. Cost of Retained Earnings. Source # 1. New Issues: The computation of cost of equity share capital is, no doubt, a difficult and controversial task since different authorities have conveyed different explanations and approaches […]

How to Handle Risk Factor of Capital Budgeting ?

Here are some of the techniques which can handle the risk factor of capital budgeting:- 1. Risk-Adjusted Discount Rate 2. Certainty-Equivalent 3. Quantitative Techniques 4. Probability Assignment 5. Standard Deviation 6. Co-Efficient of Variation 7. Sensitivity Analysis 8. Decision Trees. Technique # 1. Risk-Adjusted Discount Rate: Generally, against risk the businessman requires a premium over […]

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) […]

Risk and Uncertainty Analysis | Capital Budgeting

It was assumed that those investment proposals did not involve any kind of risk, i.e., whatever the proposal is undertaken, there would not be any change in the business risk which are apprehended by the suppliers of capital. Practically, in real world situation, this seldom happens. We know that decisions are taken on the basis […]

Top 7 Investment Criteria of Capital Budgeting

This article throws light upon the top seven investment criteria of capital budgeting. The investment criteria are: 1.  Accounting or Average Rate of Return Method 2. Pay Back Period 3. Discounted Cash Flow Techniques 4. Net Present Value Method 5. Internal Rate of Return or Yield Method 6. Profitability Index (PI) or Benefit Cost Ratio […]

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