What factors affect capital costs?

The cost of capital is the amount of compensation that the Company must pay for business projects when issuing shares. The cost of capital capital is slightly more complicated than the debt costs; The costs of the latter are directly associated with the interest rate for the money borrowed. The biggest factors of the cost of its own are dividends on the share of a paid company, the current market value and the rate of dividend growth. Each of this information is necessary to calculate the cost of capital. As information dictates, only publicly held companies need this formula for this process.

Dividends at the share are the current amount of money paid to shareholders for each piece of shares held by investors. These are immediate financial revenues paid to investors who “lend” money. Companies that pay large dividends at the beginning may influence their capital costs in the future. In most cases, the most likely to receive the preferred sharesEndy as rewards for investing money in the company. Shares of ordinary shares usually acquire voting rights instead of dividends; Information about the company's accounting information may not be information about ordinary shares.

The current market value of the company's preferred shares is the denominator of the initial calculation of capital costs. The value of a high market share tends to indicate that investors are quite willing to invest in society. Therefore, the preferred stock of low supply and high demand can lead to these high prices. Companies that continue to liquidate the value of preferred shares through constant issuance of shares can affect their future capital costs. In some cases this is why companies only re -edition of ordinary shares with voting

the last factor that can significantly affect the company's cost per capital chapItal is the rate of dividend growth expected for preferred shares. This growth rate suggests that the amount of money that the company will continue to pay to investors holding preferred shares. Some companies may decide to maintain the rate of dividend growth small but stable. Other companies may have so much money that they need to reduce the balance at a certain point. Paying higher dividends preferred to shareholders can help reduce the cash balance and at the same time affect the company's costs per capital.