Multinational Capital Structure and Cost of Capital
Cost of Capital
The cost of capital refers to the blend of the weighted mean of an organization’s equity cost as well as the debt cost. This cost is an essential expected return crucial in the making of capital budgets. Investors use the cost of capital to establish whether the profits from a project are comparable to the risk associated. Otherwise, most organizations use the metric to ascertain whether a capital investment deserves allocation of resources ( Frank & Shen, 2016) . However, it is vital to note that the cost of capital is dependent on the financing mode employed. Hence, when an enterprise is financed through equity, it becomes the equity cost while it is the debt cost when financing is through debt.
The measurement of the cost of capital for a multinational firm comprises the addition of the debt costs to the equity costs using relative weights to facilitate the reflection of the percentile of the multinational's capital using the formula:
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