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Methods of Establishing Capital Costs

Author

Listed:
  • Gheorghe Suciu
  • Nicolae Barsan-Pipu

    ("Dimitrie Cantemir" Christian University)

Abstract

Capital cost represents an important element in the orientation of investments on the market. The most important component when comparing the investment alternatives is risk, respectively the uncertainty level with which the investor will achieve the expected profitability in a certain period of time. Capital cost represents a direct link between the investments’ profitability and the profitability claimed by the capital bearers. Capital cost represents an acceptance or rejection indicator of an investment project, respectively of the investment decision. The cost of equity capital is equivalent to the level of profitability expected by the businesses’ financers, shareholders or creditors. The potential gain of the equity holder must be big enough to encourage them to buy stocks and also to keep them, a situation which is characterized by an estimated rate of return which covers the risks of the financial investment.

Suggested Citation

  • Gheorghe Suciu & Nicolae Barsan-Pipu, 2013. "Methods of Establishing Capital Costs," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(2), pages 157-161, June.
    • Handle: RePEc:khe:journl:v:5:y:2013:i:2:p:157-161
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    More about this item

    Keywords

    Capital cost; opportunity cost; actual annual cost; ownership equity; loaned capital;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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