Computation of Specific Cost Capital Assignment Is Important for Students

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What do you mean by Computation of Specific Cost Capital?

The word specific cost capital is very meaningful in study of business. It is because investment done by a business is very important to get a perfect return. Now, whatever a firm earns from one investment and put that rate of return from that investment into some other investment with the same risk of level, then it is known as specific cost capital.

Computation is a process through which you can easily understand that how to calculate Capital’s cost. Computation will be completed after understanding the fundamentals. In case of problems, you can easily get that Computation of Specific Cost Capital assignment help is always there with you to help for your assignment.

What are the different ways of computation of cost of capital?

The calculation can be done in a different ways. Competition can be done by some particular financial source and these are –

• Cost of debt

In this case, interest gets paid on the basis of its debentures. For the redeemable debentures the formula is –

Kdb = I + 1/ n (RV – NP)/ 1/ 2(RV-NP)

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• Preference share Capital cost

At the regular interval of time a part of dividend is provided to the shareholders. In case it is not done, then the capacity of fund raising will get affected. In general, Kp = D/P.  However, in case of premium, Kp = D/ NP. In case of redeemable preference of share,

Kp = D + 1/ n (MV-NP)/ 1/ 2(MV-NP)

• Cost of Equity Share capital

In this case the return can be provided to the shareholders in a different ways as-

• Dividend per share or Ke = D/ P
• Growth + Dividend Per share or Ke = g + D/ P
• Earning Per share
• Realized Yield Method

This explains that sometimes the above procedures are not able to find out the value in a correct way. Thus, rate of return in an average manner can be found out on the basis of dividend received earlier together with gain taken while there is sale of those shares.

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• Cost of return earning

Other than the financial source, you can also get the weighted average cost of capital in computation as Kw = ∑XW/ ∑W.

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