WACC

WACC



WACC

Approach to Determine Cost of Capital

The cost of capital is the required return on the different types of financing and investment. This cost can be explicit or implicit and be expressed as the opportunity cost for an equivalent alternative investment. Determining the cost of capital implies the need to estimate the risk of entrepreneurship, analyzing the components that make up the capital. In this case of investment in East Asia, three colleagues have also worked on to determine cost of capital. One view is that since the cost of equity is linked to dividends, and the cost of borrowing is lower than that for equity, a business can reduce its WACC by paying smaller dividends. Furthermore, it is odd that the business should have a target dividend growth rate. Another colleague is with the view that in terms of WACC all that really matters is the BETA aspect, while the third colleague showed importance of various types of risk in the investment. After discussing the cost of capital, I have suggested the WACC to determine the cost of capital as it is abroad concept and covers both the equity and the debt with the estimation of market risk and beta.

The Cost of Capital

Related to the cost of capital at a cost of funds obtained by the company by borrowing or issuing shares or detention of profits for use in financing investments. The importance of calculating the cost of capital in determining the economic feasibility of investment projects. In the standard net present value of the use of the cost of capital rate discount (Hovakimian et al, 2001). In the standard rate of return procedure has been used the cost of capital such as reducing the minimum required rate of return on investment in both criteria in the interest of the company that the cost of capital low, because it allows them a greater number of opportunities profitable investment and makes it grow faster.

Means the cost of debt is a rate of return required by lenders to lend to the company and accept the return is measured in the same manner as measured by internal rate of return. The cost of any religion Ki equal to the discount rate has settled the market value of any support price of the bond market PB and the present value of the interest paid to It, and the present value of the bond nominal value of M and can be expressed by the equation.

Relationship with the cost of capital

The cost of capital is equal to the cost of ownership when the full financing of the company's investments from the funds of ownership (retained earnings and equity) means that the cost of capital is high and when you begin dragging religion in the funding structure reduced the cost of capital because when a growing proportion debt started from scratch in the structure finance company, the cost of capital gradually decrease, although moderate increases in the cost of debt and the cost of access ...