|cost of capital|
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Definition of cost of capital
cost of capital
Refers to the interest cost of debt capital used by a business
Cost of capital
The blended cost of a company’s currently outstanding debt instruments
Cost of capital
The costs incurred by an organization to fund all its investments, comprising the risk-adjusted
Cost of Capital
The discount rate that should be used in the capital budgeting process.
Cost of Capital
The minimum rate of return a company must earn in order to meet
Cost of capital
The required return for a capital budgeting project.
A firm's required payout to the bondholders and to the stockholders expressed as a
Expected rate of return demanded by investors in a company, determined by the average risk of the company’s assets and operations.
the weighted average cost of the
Expected return that is foregone by investing in a project rather than in
the highest rate of return that
Expected rate of return given up by investing in a project.
Minimum acceptable expected rate of return on a project given its risk.
The implicit annual cost of investing in physical capital, determined by things such as the interest rate, the rate of depreciation of the asset, and tax regulations. What would be paid to rent this capital if a rental market existed for it.
Expected return on a portfolio of all the firm's securities. Used as a hurdle
See cost of capital.
Weighted means that the proportions of
a composite of the cost of the various sources of funds that comprise a firm’s capital structure; the minimum rate of return that must be earned on new investments so as not to dilute shareholder value
The weighted average of the costs of the capital components
Expected rate of return on a portfolio of all the firm’s securities, adjusted for tax savings due to interest payments.
A weighted average of the component costs of debt, preferred shares, and common equity. Also called the composite cost of capital.
Aggressive Cost Capitalization
cost capitalization that stretches the flexibility within generally
Capital Cost Allowance (CCA)
The annual depreciation expense allowed by the Canadian Income Tax Act.
capitalization of costs
When a cost is recorded originally as an increase
Capitalized Cost An expenditure or accrual that is reported as an asset to be amortized against
Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital
Costs Capitalized in Stealth
A particularly egregious form of aggressive cost capitalization
Undepreciated Capital Costs
The tax definition of the value of an asset that is eligible for tax deprecation.
Placing one or more limits on the amount of new investment undertaken by a firm, either
costs of maintaining current assets, including opportunity cost of capital.
Cost of Common Stock
The rate of return required by the investors in the common stock of
Cost of Debt
The cost of debt (bonds, loans, etc.) that a company is charged for
Cost of Preferred Stock
The rate of return required by the investors in the preferred stock of
the rate of return used to discount future cash
Discounted cash flow (DCF)
A method of investment appraisal that discounts future cash flows to present value using a discount rate, which is the risk-adjusted cost of capital.
discounted cash flow (DCF)
Refers to a capital investment analysis technique
Economic Value Added (EVA)
Operating profit, adjusted to remove distortions caused by certain accounting rules, less a charge
economic value added (EVA)
a measure of the extent to which income exceeds the dollar cost of capital; calculated
Government sponsored enterprises
Privately owned, publicly chartered entities, such as the Student Loan
Common stock of a company that has an opportunity to invest money and earn more than the
The minimum rate of return that a capital purchase proposal must pass
Internal rate of return (IRR)
A discounted cash flow technique used for investment appraisal that calculates the effective cost of capital that produces a net present value of zero from a series of future cash flows and an
Net present value
A discounted cash flow methodology that uses a required rate of
Net Present Value (NPV) Method
A method of ranking investment proposals. NPV is equal to the present value of the future returns, discounted at the marginal cost of capital, minus the present value of the cost of the investment.
optimal mix of capital
the combination of capital sources at which the lowest weighted average cost of capital is achieved
Also called economic value added. Profit minus cost of capital employed.
Residual income (RI)
The profit remaining after deducting from profit a notional cost of capital on the investment in a business or division of a business.
return on assets (ROA)
Although there is no single uniform practice for
See: Weighted average cost of capital.
See weighted-average cost of capital.
"Soft" Capital Rationing
capital rationing that under certain circumstances can be violated or even viewed
A method of costing in which all fixed and variable production costs are charged to products or services using an allocation base.
a cost accumulation and reporting
A methodology under which all manufacturing costs are assigned
Accelerated cost recovery system (ACRS)
Schedule of depreciation rates allowed for tax purposes.
A method of costing that uses cost pools to accumulate the cost of significant business activities and then assigns the costs from the cost pools to products or services based on cost drivers.
activity based costing (ABC)
A relatively new method advocated for the
activity-based costing (ABC)
a process using multiple cost drivers to predict and allocate costs to products and services;
Activity-based costing (ABC)
A cost allocation system that compiles costs and assigns
The actual expenditure made to acquire an asset, which includes the supplierinvoiced
actual cost system
a valuation method that uses actual direct
Additional paid-in capital
Amounts in excess of the par value or stated value that have been paid by the public to acquire stock in the company; synonymous with capital in excess of par.
Additional paid-in capital
Any payment received from investors for stock that exceeds
additional paid-in capital
Difference between issue price and par value of stock. Also called capital surplus.
Agency cost view
The argument that specifies that the various agency costs create a complex environment in
The incremental costs of having an agent make decisions for a principal.
Aggressive Capitalization Policies
capitalizing and reporting as assets significant portions of
Total costs, explicit and implicit.
cost of a security adjusted for the amortization of any purchase premium or
a quality control cost incurred for monitoring
attribute-based costing (ABC II)
an extension of activitybased costing using cost-benefit analysis (based on increased customer utility) to choose the product attribute
authorized share capital
Maximum number of shares that the company is permitted to issue, as specified in the firm’s articles of incorporation.
Average-Cost Inventory Method
The inventory cost-flow assumption that assigns the average
costs that are identifiable with and able to be influenced by decisions made at the business
a streamlined cost accounting method that speeds up, simplifies, and reduces accounting effort in an environment that minimizes inventory balances, requires
Bankruptcy cost view
The argument that expected indirect and direct bankruptcy costs offset the other
A cost that is incurred when a group of products or services are produced,
a cost that is caused by a group of things
a planned expenditure
Money invested in a firm.
The money, raised by selling stock or bonds or taking out loans, that you use to start, operate, and grow a business.
The shareholders’ investment in the business; the difference between the assets and liabilities
A very broad term rooted in economic theory and referring to
The investment by a company’s owners in a business, plus the impact of any
a) Physical capital: buildings, equipment, and any materials used to produce other goods and services in the future rather than being consumed today.
Expenditures Purchases of productive long-lived assets, in particular, items of property,
Any asset or stock of assets, financial or physical, capable of producing income.
Net result of public and private international investment and lending activities.
That part of the balance of payments accounts that records demands for and supplies of a currency arising from purchases or sales of assets.
decision Allocation of invested funds between risk-free assets versus the risky portfolio.
an asset used to generate revenues or cost savings
A fixed asset, something that is expected to have long-term usage within
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and
Capital Asset Pricing Model (CAPM)
A model for estimating equilibrium rates of return and values of
capital asset pricing model (CAPM)
Theory of the relationship between risk and return which states that the expected risk
A firm's set of planned capital expenditures.
management’s plan for investments in longterm
List of planned investment projects.
The process of choosing the firm's long-term capital assets.
Refers generally to analysis procedures for ranking
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