Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
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4.A man invests in a project that requires a fixed capital of P 2.5 M with no salvage, and life of 12 years. During its life an estimated maintenance cost of P 280, 000 will be spent each year. Taxes and insurance will be 5 % of the first cost. The project will yield a uniform annual revenue of P 1M. The company expects to earn 20% before income taxes. Compute the pay out period.
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