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Cost of Capital
Summary
Cost of capital represents the return a company needs to achieve to justify the cost of a
capital project, such as purchasing new equipment. The cost of capital encompasses the cost of
both equity and debt, weighted according to the company's preferred or existing capital structure.
Explanation
Companies need to raise capital to invest in new projects and grow. There are ultimately
just three main ways companies can raise capital: from net earnings from operations, by borrowing,
or by issuing equity capital (Luthy, 1998, August). Debt and equity capital are commonly obtained
from external investors.
The relies on various sources of capital since it allows the organization to grow and move
in the right direction. it's also important able to fund the organization, various sources of capital
are used in funding for working capital as well.
The target capital structure of an organization refers to the capital which the company is
striving to obtain. The target capital structure describes the mix of debt, preferred stock, and
common equity which is expected to optimize the stock price of an organization.
The different degrees of risk that affect an organization include; financial risk, strategic
risk, reputation risk, liability risk, business interruption risk, and security risk (Alessandri, et al.,
2004). I will use the balance sheet, income statement, and cash flow statement of the organization
to manage the operations of their business and also to provide transparency to their stakeholders.
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The organization will tend to match the maturity of their assets and liabilities, and thus they
often use long-term debt to make long-term investments, such as purchases of fixed assets or
equipment (Fernández, et al., 2009). Long-term finance also offers protection from credit supply
shocks and having to refinance in bad times.
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References
Alessandri, T. M., Ford, D. N., Lander, D. M., Leggio, K. B., & Taylor, M. (2004). Managing risk
and uncertainty in complex capital projects. The Quarterly Review of economics and
finance, 44(5), 751-767.
Fernández, J. L., Forder, J., Trukeschitz, B., Rokosová, M., McDaid, D., & World Health
Organization. (2009). How can European states design efficient, equitable and sustainable
funding systems for long-term care for older people?
Luthy, D. H. (1998, August). Intellectual capital and its measurement. In Proceedings of the Asian
Pacific Interdisciplinary Research in Accounting Conference (APIRA), Osaka, Japan (pp.
16-17).

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Cost of Capital Summary Cost of capital represents the return a company needs to achieve to justify the cost of a capital project, such as purchasing new equipment. The cost of capital encompasses the cost of both equity and debt, weighted according to the company's preferred or existing capital structure. Explanation Companies need to raise capital to invest in new projects and grow. There are ultimately just three main ways companies can raise capital: from net earnings from operations, by borrowing, or by issuing equity capital (Luthy, 1998, August). Debt and equity capital are commonly obtained from external investors. The relies on various sources of capital since it allows the organization to grow and move in the right direction. it's also important able to fund the organization, various sources of capital are used in funding for working capital as well. The target capital structure of an organization refers to the capital which the company is striving to obtain. The target capital structure describes the mix of debt, preferred stock, and common equity which is expected to optimize the stock price of an organization. The different degrees of risk that affect an organization include; financial risk, strategic risk, reputation risk, liability risk, business interruption risk, and security risk (Alessandri, et al., 2004). I will use the balance sheet, income statement, and cash flow statement of the organization to manage the operations of their business and also to provide transparency to their stakeholders. The organization will tend to match the maturity of their assets and liabilities, and thus they often use long-term debt to make long-term investments, such as purchases of fixed assets or equipment (Fernández, et al., 2009). Long-term finance also offers protection from credit supply shocks and having to refinance in bad times. References Alessandri, T. M., Ford, D. N., Lander, D. M., Leggio, K. B., & Taylor, M. (2004). Managing risk and uncertainty in complex capital projects. The Quarterly Review of economics and finance, 44(5), 751-767. Fernández, J. L., Forder, J., Trukeschitz, B., Rokosová, M., McDaid, D., & World Health Organization. (2009). How can European states design efficient, equitable and sustainable funding systems for long-term care for older people? Luthy, D. H. (1998, August). Intellectual capital and its measurement. In Proceedings of the Asian Pacific Interdisciplinary Research in Accounting Conference (APIRA), Osaka, Japan (pp. 16-17). Name: Description: ...
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