Finance & Financial Mgt Cost of Capital 1

Finance & Financial Mgt Cost of Capital 1 by Prof. Adebayo Paul Adejola

No source of capital is costless to a business firm. Firms pay in one form or the other for the capital they obtain from various sources. For instance, the bondholders would have to be paid their contracted fixed rate of interest, preferred stockholders would be paid the preferred dividend and equity stockholders would be paid their dividend whenever declared.

Cost of capital can therefore be said to be the rate of monetary return which the firm has to offer to suppliers of capital in order to attract their funds. It is the price paid to obtain a prize.

We shall calculate the cost of the individual components of the capital structure. Thereafter, the component costs of capital will be combined to obtain an appropriate overall cost of capital for the firm.

After watching this Video clip, you should be able to:

    Explain the meaning and nature of cost of capital

    Compute Cost of Equity (Ke);

    Compute Cost of Debt (Kd);

    Compute Cost of Preference shares (Kp); and

    Compute Weighted Average Cost of Capital (WACC-Kw).

    Compute Cost of Equity using Capital Asset Pricing Model (CAPM).

Click the Video below to watch the lesson

Presentation by: Prof. Adebayo Paul Adejola, FCNA.

Professor Adebayo is a Lecturer at Nasarawa State University, Keffi and the Managing Consultant, White Knight Consulting. He is a Resource person and Consultant to ANAN and numerous organizations in Nigeria and abroad.