may be tapped by a person starting or operating a small business. For many firms, however, access to both capital sources and methods by which capital may be obtained from these sources is often restricted by a variety of diverse factors. The problem facing a firm in this context is to obtain the capital required, in the amount required, and under conditions which enable the firm to continue to fulfill its corporate objectives. Several important factors are involved in the solution to this problem, and these factors are considered in the discussions that follow.
Cost of capital refers to the cost to the corporation of investment capital (Bolten and Conn 24). The cost for borrowed money is the relevant interest rate (Brigham 342). The cost of equity capital is a combination of float charges, dividend payments, and dilution of existing equity (Moyer, McGuigan, and Kretlow 179). Each financial instrument (the way capital is generated) has a separate cost of
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