Cost Of Capital Introduction - Accounts and Finance for Managers

It is imperative to study the importance of cost of capital to the tune of financing decision of the firm. The financing decision of the firm normally facilitates the firm to raise the financial resources to the requirements of the firm. The raising of the financial resources should be carried out not only to the tune of financial requirements but also it should mind about the cost of availing the resource; which means that the cost of raising and applying the resources in and of the organization. The cost is the most limiting factor of influence for the success of the firm, the reason is that the cost of capital is the major determinant of success of the business firm. The firm must be facilitated to raise the financial resources at cheaper cost in order to earn more and more

The cost of capital is used as a phenomenon for the decision criterion in the case of studying the worth of long-term assets, which have got greater importance in the success of the firm. The cost of capital is instrumented in the Net present value method and Internal rate of return method of studying the worth of long-term assets under the capital budgeting decisions of the enterprise.


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