classification of cost of capital

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Uma asked over 3 years ago

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 narahari answered about 3 years ago

Historical cost and Future cost :- Historical cost are the costs which are incurred for the procurement of funds based upon the existing capital structure of the firm. It is a book cost. Future cost is the cost which is relate to estimated for the future. Simply it is the cost to be incurred for raising new funds. Specific cost and composite cost:- Specific cost refers to the cost which is associated with the particular sources of capital. Composite cost is the combined cost of different sources of capital taken together.

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Data?1494421730 rohit awasthi answered over 3 years ago

Dear Uma > CLASSIFICATION OF COST OF CAPITAL 1. Historical cost and Future cost 2. Specific cost and Composite cost 3. Average cost and Marginal cost 4. Explicit cost and Implicit cost Historical cost and Future cost :- Historical cost are the costs which are incurred for the procurement of funds based upon the existing capital structure of the firm. It is a book cost. Future cost is the cost which is relate to estimated for the future. Simply it is the cost to be incurred for raising new funds. Specific cost and composite cost:- Specific cost refers to the cost which is associated with the particular sources of capital. Composite cost is the combined cost of different sources of capital taken together. Average cost and Marginal cost:- Average cost is the combined cost of various sources of capital such as equity shares, debentures, preference shares. Marginal cost of capital is the average cost of capital which has to be incurred due to new funds raised by the company for their financial requirements. Explicit cost and Implicit cost:- Explicit cost is the cut-off rate or internal rate of return. Implicit cost is the rate of return related to the best investment opportunity of the firm and its shareholders that will be foregone in order to take up a particular project. Thanks

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 lochan answered over 3 years ago

**CLASSIFICATION OF COST OF CAPITAL** i) Historical Cost and Future Cost: Historical costs are book costs relating to the past, while future costs are estimated costs act as guide for estimation of future costs. ii) Specific Costs and Composite Costs: Specific cost is the cost of a specific source of capital, while composite cost is combined cost of various sources of capital. Composite cost, also known as the weighted average cost of capital, should be considered in capital and capital budgeting decisions. iii) Explicit and Implicit Cost: Explicit cost of any source of finance is the discount rate which equates the present value of cash inflows with the present value of cash outflows. Implicit cost also known as the opportunity cost is the opportunity foregone in order to take up a particular project. For example, the implicit cost of retained earnings is the rate of return available to shareholders by investing the funds elsewhere. Average Cost and Marginal Cost: An average cost is the combined cost or weighted average cost of various sources of capital. Marginal cost refers to the average cost of capital of new or additional funds required by a firm. It is the marginal cost which should be taken into consideration in investment decisions. Thanks

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Open uri20170510 32134 tcchcu?1494421832 Jitendra Suthar answered over 3 years ago

Hiiii friend...... **Classification of COC** 1. Historical Cost and future Cost 2. Specific Costs and Composite Cost 3. Average Cost and Marginal Cost 4. Explicit Cost and Implicit Cost Regards,

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