Financing cost: refers to commission or handling fee, etc.
The cost of capital includes fund raising expenses (handling fees) and use expenses (interest).
The cost of capital ratio refers to the ratio between the company's expenses and the amount of funds effectively raised, usually expressed as a percentage. In the practice of enterprise financing, the relative number of capital cost is usually adopted, that is, the capital cost rate.
Expenses in financing expenses refer to the price paid by using funds, such as dividends paid to shareholders or interest paid to creditors. If the matching annuity method is adopted in the preparation of the financial lease rent plan, the discount rate is usually the capital rate cost.
The cost of capital refers to the price paid by enterprises to raise and use funds. Capital cost includes two parts: financing cost and capital occupation cost. Financing expenses refer to various expenses paid in the process of financing, such as printing fees, attorney fees, notarization fees, guarantee fees, advertising fees, etc. It should be noted that when an enterprise issues stocks and bonds, the handling fee paid to the issuing company is not regarded as the raising fee of the enterprise. Because this expense has not been accounted for by the enterprise, the enterprise accounts for it according to the issue price and the net amount after deducting the issue expense. The fund occupation fee refers to the fee that should be paid for occupying other people's funds, or the reward that the fund owner asks the fund user by virtue of his ownership of funds. Such as dividends, bonuses, interest paid by bonds and bank loans.
The role of capital cost in enterprise financing decision-making is as follows:
1, the cost of capital is an important factor affecting the total financing of enterprises;
2. The cost of capital is the basic basis for enterprises to choose the source of funds;
3. The cost of capital is the reference standard for enterprises to choose financing methods;
4. The cost of capital is the main parameter to determine the optimal capital structure.
The role of capital cost in investment decision-making is as follows:
1. When making investment decisions with NPV indicators, the cost of capital is often used as the discount rate;
2. When making decisions by using the internal rate of return, the cost of capital is generally used as the benchmark rate of return. The so-called capital cost is the cost paid by enterprises to raise and use funds. Each kind of capital has its own specific cost of capital. For example, financing by bonds must pay corresponding interest, which can be fixed interest rate or variable interest rate. Stock financing must pay dividends, and in most cases, investors' capital gains are expected to change with the change of stock market value.
The cost of capital is an important issue related to the financing and investment decision-making of modern enterprises. The role of capital cost in enterprise financing decision-making is as follows: capital cost is an important factor affecting the total amount of enterprise financing; Capital cost is the main basis for enterprises to choose capital sources; Capital cost is the reference standard for enterprises to choose financing methods; The cost of capital is the main reference to determine the optimal capital structure.
The role of capital cost in enterprise investment decision-making is: capital cost can be used as the discount rate of project investment; The cost of capital is the benchmark rate of return of investment projects. At the same time, the cost of capital is the basis for evaluating the operating results of enterprises. Any enterprise whose actual rate of return on investment is lower than this level should be considered as operating unfavorably, which also sends a signal to enterprise managers that enterprises must improve their management and improve their economic benefits.