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Airline Capital Structure and Cost of Capital
Published in Bijan Vasigh, Ken Fleming, Liam Mackay, Foundations of Airline Finance, 2018
Bijan Vasigh, Ken Fleming, Liam Mackay
Generally speaking, companies use a mix of the four sources of capital to fund operations: debt, preferred stock, common stock, and retained earnings. With various sources of capital having different costs, financial managers must use a combination of methods to provide the company with the lowest cost of capital. As a result, the total cost of capital of a company is the combination of the costs of the various sources of capital. The weighted average cost of capital takes into account the different costs of capital based on the company’s capital structure. Each individual cost of capital is then weighted based on its proportion of the company’s total capital structure. In essence, the WACC is the average of the cost of capital for all components contained in the capital structure.
Financing and Performance Contracting
Published in Stephen A. Roosa, Steve Doty, Wayne C. Turner, Energy Management Handbook, 2020
Eric A. Woodroof, Stephen A. Roosa
In all cases, the borrower will pay an interest charge to borrow money. The interest rate is the cost of capital. This cost is essentially dependent on three factors: 1) the borrower’s credit rating, 2) project risk, and 3) external risk. External risk can include energy price volatility and industry-specific economic performance, as well as global economic conditions and trends. The cost of capital (or cost of borrowing) influences the return on the investment. The return on investment (ROI) calculates the “discount rate that would make the present value of the project equal to zero” [4]. This provides a value that estimates the annualized rate of return (yield) for the project. If the cost of capital increases, then the return on investment decreases.
The role of risk and return in information technology outsourcing decisions
Published in Gerald Mars, David Weir, Risk Management, 2019
The CAPM provides a useful and practical conceptual framework for managerial decision-making, particularly for capital budgeting and cost of capital determination (Mullins, 1982). The cost of capital is used by corporate managers as a hurdle rate in evaluating investments. The CAPM allows managers to adjust hurdle rates for individual projects depending on their levels of risk. Its primary application to information systems is in the role of determining risk-adjusted hurdle rates for IT investments (Yan Tam, 1992). A major criticism of the risk-adjusted hurdle rates is that they tend to have a discouraging effect on IT investments, particularly on strategic information systems (Clemons and Weber, 1990).
The effect of disciplinary inspection commission participation on the financing constraints of Chinese state-owned enterprises: a circular economy perspective
Published in Production & Manufacturing Research, 2023
Jing Zhou, Tze San Ong, Luisa Mastellone, Assunta Di Vaio
Our findings also offer practical implications for managers. Firms are encouraged to recognize that DIC participation is a unique characteristic of the Chinese governance system and can serve as an internal control mechanism to monitor and regulate the behavior of Party and government officials. By incorporating the principle of DIC participation into their CG practices, companies may be able to improve transparency and accountability, promote ethical behavior, and reduce the risk of corruption. The presence of DIC participation may reduce perceived risk and financing constraints for companies. Companies operating in regions with DIC participation may be perceived as less risky by investors, leading to lower financing constraints (Steinle et al., 2014). This, in turn, may lower the cost of capital for companies, making it easier for them to access financing and invest in growth opportunities.