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Cost of Capital-Capital Budgeting

How does cost of capital financing techniques affect the organization?

How do you use capital budgeting and relevant cash flow to compare investment alternatives?

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Question: How does cost of capital financing techniques affect the organization?

Answer: Cost of capital is the required return necessary to make a capital budgeting project worthwhile. Cost of capital includes the cost of debt and the cost of equity. Capital (money) used for funding a business should earn returns for the capital owner who risked his/her saved money. For an investment to be worthwhile the projected return on capital must be greater than the cost of capital. The cost of capital determines how a company can raise money (through a stock issue, borrowing, or a mix of the two). This is the rate of return that a firm would receive if it invested in a different vehicle with similar risk. Essentially, cost of capital financing techniques affects the way ...

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How does cost of capital financing techniques affect the organization?

How do you use capital budgeting and relevant cash flow to compare investment alternatives?

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