Measuring the cost of corporate finance

Level: Undergraduate | Grade: 2.2 | Approx. Word Count: 2,500

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Overview

The current study examines the measurement tools that are used as a means of appropriately pricing the cost of capital that corporations are seeking to raise.

The majority of corporate enterprises are likely, at some stage, to require additional capital for this purpose (Damodaran 2001; Pike et al 2012). Where there is lack of internal sources available to meet this requirement, firms will need to secure this capital from external sources. For the corporation seeking capital in return for equity (shares) or the issuance of bonds, and indeed the provider, it is important to for these stakeholders to be able to accurately calculate and measure the cost and/or return on investment (ROI). These measurements not only have to assess the ROI, but also take into account the impact that external economic factors, such as inflation and interest rates might have on the ROI.