Answer / amit gupta

The cost of Capital to a company is the minimum rate of
return that it must earn on its investments in order to
satisfy the various categories of investors who have made
investments in the form of shares, debentures or term loans.

Difference Sources of Finance :
1. Cost of Debenture
2.Cost of Term Loan
3.Cost of Prefence Share
4.Cost of Equity Share

Ke = D1/Pe + g

Answer / vidya

the formulae for cost of capital:

Ke= (D1/P0)+(1+G)

D1= Current Dividend
P0= Price
G= Growth ratio

Answer / dharmika

cost of capital is one of the consideration for taking a
decision whether to distribute dividend r not.
As a decision makeing tool,the board calculates the ratio
of rupee profits the business expect to earn out side(RC)
i,e Ra/Rc
If the ratio is less than one,it is signal to distribute
dividend and if it is more than one,the distribution of
dividend will be dicontinued.

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