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Essay / Research Paper Abstract
This 17 page paper considers the different ways of calculation the cost of capital. The different methods include looking at the cost of equity and the cost of debt, with consideration of how the CAPM (capital asset pricing model), can satisfy the calculations for the cost of equity. The use of the weighted average cost of capital is also used. For the different methods examples calculations are performed so that the student can understand them and replicate these in their own work. The bibliography cites 12 sources.
Page Count:
17 pages (~225 words per page)
File: TS14_TEcostcp.rtf
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Unformatted sample text from the term paper:
dividends, or in interest on loan payments. Cost of capital in any organisation, international or domestic is the return expressed as an interest rate the company pays on all of
the capital which is used in the financing of its activities. As the capital originates from a range of sources, such as share capital (also known as equality), loan
capital and debt. The cost of capital is a combination of all of these factors. There are many debates over which combination will result in the lowest or highest cost
of capital, with gearing increasing the debt repayments, but potentially increasing risk and increasing the demand for a return on the shares and as such capital costs can be increased
and counteract and decrease that a lower debt rate may create. The approach to calculating the cost of capital may take place in several ways, For example, the calculation
of the cost of equity and the cost of loans and debt which is then calculated proportionally and result in the total cot of capital. Alternatively the method used may
be that of the weighted average cost of capital. The value in knowing the cost of capital is multifaceted. From internal calculations the best course of action may be
projected by looking at the changes any change in the capital base will create it is also useful as the base line or hurdle that needs to be breached when
discounted cash flow is calculated. In looking at the different was in which cost of capital can be calculated the first we will consider is the use of cost
of equity and then cot of debt. 2. Cost of Equity The cost of equity can be calculated in several ways. The most popular is the Capital Assets Pricing
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