Leverage Analysis LET US SUM UP - Accounts and Finance for Managers

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 cost of capital is used as a phenomenon for the decision criterion in the case of studying the worth of long-term assets. Cost of capital is the minimum rate of return which the firm should or must earn only in order to maintain the value of the shareholders. The cost of the perpetual debt is nothing but the cost of raising the debt financial resource, in which the time period of repayment of the principal is not known. This particular specific source has two different classifications viz cost of interest and cost of debt.

The term cost of capital is nothing but the overall cost of capital which is to be computed to the tune of the proportion of the funds in the mixture; should computed only to the tune of assignment of weights. The weight average cost of capital has its own steps to follow during the process of computation.


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