Naslov
Cost of Capital

Autori
Kontuš, Eleonora

Vrsta, podvrsta i kategorija rada
Sažeci sa skupova, prošireni sažetak, znanstveni

Izvornik
Book of Proceedings 15th International Congress on Insurance: Mathematics and Economics, University of Trieste, Department of Mathematics / - Trst, 2011, 160-160

Skup
15th International Congress on Insurance: Mathematics and Economics

Mjesto i datum
Trst, Italija, 14.06.2011. - 17.06.2011

Vrsta sudjelovanja
Predavanje

Vrsta recenzije
Međunarodna recenzija

Ključne riječi
cost of capital, capital structure, weighted average of capital costs, financing strategies, equations for calculating cost of capital

Sažetak
The cost of capital is a very important concept within financial management, because it is the rate of return that must be achieved in order for the price of stock to remain unchanged. The aim of the paper is, first of all, to analyze long-term capital sources and some short-term sources, secondly, to explore the costs of various financing sources and determine independent variables ; these in turn are deemed significant for the cost of capital and financing sources, and thirdly to establish the relationship between a set of independent variables in order to produce the weighted average of the individual capital costs under alternative financing strategies. Financial managers should be familiar with ways of computing the cost of various sources of financing for financial, capital budgeting and capital structure decisions. In order to determine what sources of financing to employ, it is important to take into consideration the cost of all available financing sources, make comparison of the cost of capital rates under alternative financing strategies and determine the capital structure in accordance with the overall cost of capital expressed as the weighted average of individual capital costs. Finally, the financing sources that result in the lowest overall cost of capital should be chosen. The results of the work will provide new equations for calculating the weighted average of capital costs for different capital structure under alternative financing strategies e.g. conservative, moderate and aggressive strategy. On the basis of the above, it can be determined that a company’s overall cost of capital can be accurately calculated using these equations. The results lead to the conclusion that, with regard to costs, consideration and comparison of all available financing sources under alternative strategies are easier, as calculation of the weighted average of capital cost is simplified by using the given equations and it helps to establish the optimal capital structure where the cost of capital is minimized.

Izvorni jezik
Engleski

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