What Is the Average Cost Of Capital?

The cost of capital ratio refers to the ratio between a company's capital expenditures and its effective funding amount, and is usually expressed as a percentage. In the company's financing practice, the relative number of capital costs is usually used, that is, the cost of capital ratio.

Cost of capital

capital

Calculation method of comprehensive capital cost rate:

Based on the determinants of the comprehensive cost of capital ratio,

1. The cost ratio of individual capital: it is the ratio of the capital cost of a certain fundraising to the net fundraising amount.

K = D / (pf)

K = D / P (1-F)

K ---- cost of capital, expressed as a percentage

D ---- Amount of capital expenditure

P ---- funding amount

F ---- Financing cost ratio, that is, the ratio of financing cost to financing amount

f ---- financing cost

The cost of individual capital depends on three factors: capital costs, funding costs, and funding

(1)

For example, all of ABC's

The marginal capital cost ratio refers to the capital cost ratio of the company's additional financing, that is, the cost of the company's new yuan of capital.

Sometimes the company's additional financing may only adopt a certain financing method. When the amount of financing is large or the target capital structure is established, it often needs to be achieved through a combination of multiple financing methods. At this time, the marginal cost of capital ratio should be calculated according to the weighted average method, and its capital ratio must be determined by market value.

The impact of the cost of capital ratio on capital investment:

The capital required for an enterprise to engage in production and operation activities, mainly including

First, there are many factors affecting the cost of capital ratio. The object or object of capital cost rate investment is not a non-living object, but a person with a certain amount of intelligence, physical strength, energy and life. Therefore, the cost-of-capital investment is not only affected by social, economic, cultural, and family influences, but more importantly depends on many factors such as the individual's innate IQ, preferences, behavior, and personality characteristics. Therefore, the factors that need to be considered in the cost-of-capital investment evaluation appear more complicated.

Second, the cost of capital investment is diverse. The investment orientation of the cost-of-capital ratio is affected by various factors such as the socio-economic system, personal and household income, and corporate management methods. Under the traditional planned economic system, China s basic approach to forming human capital is the government's investors. After the planned economic system transitioned to the market economy system, investors in higher education began to turn to individuals, but the government continued to undertake compulsory education At the same time, the reinvestment of human capital, such as on-the-job skills and professional training, is the responsibility of the enterprise. Therefore, human capital investors include individuals, enterprises, and governments.

Third, the cost of capital investor is intertwined with the investment object. The capital cost rate carrier itself is a natural investor, that is, the human capital carrier itself must invest in intelligence, physical strength, energy, time, etc., but it is also the target of the investee. Therefore, investors and investment targets are concentrated in the carrier This is significantly different from physical capital investment.

Fourth, the investment cost-rate asset contains non-material inputs, that is, time inputs. The cost-of-capital ratio is a kind of time-intensive capital, so time naturally becomes the input resource for capital-cost-rate investment. For most cost-of-capital investments, it takes a long time, and some investments take years, even decades or decades. The time cost of capital cost rate investment is affected by time and region. Different time periods, different locations, and different time costs. Some human capital investments, such as migration and flow, have less time costs. In addition, the vast majority of Time investment costs are relatively high.

Fifth, the cost of capital investment is sequential. Because the cost of capital cost investment takes a long time, it shows obvious sequentiality, that is, the later investment must be based on the previous investment or a prerequisite. Strictly speaking, the cost of capital investment is completed in several stages, such as primary education, junior high school education, high school education (including secondary professional education) and higher education. The entire education process has obvious stages and its succession. Sex. The sequential nature of the cost-of-capital ratio has complicated the subject of capital-cost-rate investment. In general, primary and secondary education is compulsory and the investment body is the government. As a welfare investment, the government abandons the human capital property rights formed by the investment: the main body of investment in high school education and higher education is an individual (including family members) or an enterprise, depending on the composition of the investment body, or the individual owns all human capital property rights, or a multiple investor Share property rights together; after entering an enterprise or receiving enterprise training, as a utilitarian investment, the capital cost of the new capital cost rate should be owned by the enterprise.