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Essay sample - subject matter must be directly related to the financial issues covered in the course.the sourse of your analysis should be from
Finance & Accounting
Pages 4 (1004 words)
Cost of Capital Name Course Institution Date Finance is an inevitable requirement in an organization as businesses need money to undertake a number of projects apart from running their daily activities (Millman, 2013). Right from the time a business is setup throughout its lifetime an organization will need funds…
However before one chooses a particular fund source he/she needs to consider a number of factors with the first one being the risks associated with fund source. The organization in need of finance should also evaluate the kind of relationship they are likely to engage with the potential funder and most importantly, the costs associated with the financing requirements. The cost of fund source is an important consideration for an organization when in need of raising additional funds. The cost of capital, which is the cost of funds to be used for financing an operation undertaken by the organization can be understood from three main perspectives namely investor, company and mode of financing. From an investor point of view, cost of capital refers to the opportunity cost of choosing a particular investment over others. Most investors with a diversified portfolio often have a wide array of investment opportunities where they can invest their money but they often opt for a specific investment. Pratt and Grabowski (2010) assert that the decision to invest in a specific investment often made based on the rate of return earned over that specific investment compared to others. ...
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