ECO 562 Discussion 1 Cost of capital Cost of capital Cost of capital can be said as the rate of return minimum required rate of return that must be earned by the project, the total cost of the firm used in the fund , the rates are cut off which are related to the capital expenditure or the target rate of return which are related to the investment. It can be expressed in several points of view. The cost of capital in the accounting term is the aggregate of the equity, preference, debentures, reserve etc according to their weights. The cost of capital is to be calculated by each and every organization. The cost of capital which has been used in this is explicit cost of capital. In explicit cost of capital the discount rate is equated which the present value is of funds of related cash flows which are expected by the firm. The internal rate of return can be said to be the explicit cost of capital which is paid by the firm for financing. So thatâ€™s why this cost of capital is opted. Yes this is the realistic assumption. The present value of future revenue changes when you raise or lower the cost of capital. This happens under the where there is change in the companyâ€™s borrowing. Yes this is the reasonable assumption for revenue from any of the college tuition. The university takes a lot of risk of the changes related to the demand for the enrollment in the MBA program. The cross elasticity is the elasticity related to the college students. The supply affects the elasticity of demand; supply of the jobs given by the multinationals companies will surely affect the elasticity of demand of the MBA students. When the demand will be low it will affect the price adversely. References Kaur,D (2015). Capital structure and cost of capital.
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