7
Cost of Capital
OBJECTIVES
To highlight the significance of computation of cost of capital
To show how cost of debt is computed
To show how cost of preference shares is computed
To analyse the different techniques of computation of cost of equity shares
To explain the concept of weighted average cost of capital
To explain the significance of marginal cost of capital
Any discussion on capital budgeting is not complete in the absence of a discussion of the cost of capital. This is because cost of capital acts as a cut-off rate or minimum rate of return required from an investment. An investment can bring gains only when its rate of return is greater than the cut-off rate. The present chapter, therefore, focuses on the computation of cost ...
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