Cost of Capital
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An important consideration in the assessment of capital generation options is the cost of capital. Cost of capital refers to the cost to the company of investment capital. The cost for borrowed money is the relevant interest rate. The cost of equity capital is a combination of float charges, dividend payments, and dilution of existing equity. Each financial instrument has a separate cost of capital determination.Studies indicate that new equity stock financing carries lower cost of capital than do other long-term financial instruments. Nevertheless, existing shareholders frequently are unwilling to dilute their ownership to too great an extent, preferring, instead, to pay the higher costs for other types of capital generation. A medium-sized company with a strong balance sheet might find that corporate bonds are a preferred way to manage cost of capital while preser
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Approximate Word count = 591
Approximate Pages = 2 (250 words per page)
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