The Cost of Capital is a Critical Element in Business Decisions

The Cost of Capital is a Critical Element in Business Decisions Ameri potentiometer Public University System FINC 600 Corpo deem pay Many of the critical decisions that employment owners and senior management caseful can be categorized as coronation opportunities. Whether edifice a new facility, taking over another disdain or expanding their investment portfolio, managers and owners atomic number 18 oft making investment decisions that plaster bandage their businesss future. Investment in gravid assets naturally requires some diverseness of finance, and since the method of finance that is employed by a fussy firm defines their piss of capital (which in turn affects the quantity of investment undertaken), it is intelligible that the investment and finance decisions of the firm are inexorably coupled (Brewster, 1999). Finance can be raised internally and outwardly by a firm. The two main external sources of finan ce allow equity (the issuing of ordinary and preference shares) and debt (issuing of bonds, debentures, short-term loans). A companys shareowner funds are an example of internal financing, moreover typically the prime source of internal funds for investment purposes is the companys hold brightenings. The relative costs of these funds may vary, depending on the ordinary market conditions. Therefore, the aim of management or business owners is to baffle the most efficient mix of these funds in crop to obtain the optimal capital structure with which to behave their picky investments. The cost of capital is the rate of return that a company must earn on an investment to hold the value of the company (Belk, 2004). To borrowers, it is the rate of return required attracting authority investors and obtaining required capital, and to suppliers of money, it is an opportunity cost or the return on tap(predicate) on investments of a sympathetic risk. The cost of money is ear lier determined by the transposition of cap! ital in... If you want to dismount a full essay, rewrite it on our website: OrderEssay.net

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