Company's Cost of Capital

Cogeneration 9 Mini Case In the past few years Harry Davis Industries has been restricted by high capital costs and can not make large capital investments. Recently, capital costs have declined, the company decided to seriously consider a large expansion plan proposed by the marketing department. Suppose you are an Assistant to Leigh Jones, Vice President of Finance. Your top priority is to estimate the capital cost of Harry Davis. Jones provides the following data. We believe that these data may be relevant to your work.

In this article, we will examine the main factors that affect corporate capital cost. In this white paper, we first analyze the main factors affecting the company's capital cost, then consider the differences between these factors of multinational companies and how the market operates in a single country. First of all, in this article we refer to multinational corporations to examine issues of capital costs, in particular Johnson et al. We will use the definition of multinational corporation provided by (2008). The definition given here is a multinational corporation which operates only in several diverse geographical markets, crossing the border and crossing the border.

However, multinational companies pay particular attention to interest rate issues and corporate capital costs. Domestic companies are completely affected by fluctuations in interest rates in the domestic market. On a global scale, some think that interest rates are set locally so as to reflect the interests of the country and region. In the case of multinational companies, it is considered that enterprises can utilize this divergence of interest by looking for borrowing and distribution tools in countries representing the lowest interest rates of central banks. For example, at the moment, as low interest rates are only 0.5%, it is possible that many companies will be fascinated with doing business in the UK, purchasing loans or issuing financial products. capital

The sum of the cost of equity finance and debt finance is the company's capital cost. Capital cost represents the minimum revenue a company must earn through capital to meet the needs of shareholders, creditors and other capital providers. Company investment decisions related to new projects and projects will always generate revenue that exceeds the cost of capital. If the rate of return on capital investment is lower than the cost of capital, the company will not give positive income to investors. In this case, the company may need to reconsider the capital structure and rebalance.