06 March 2016
Hi All, I have a query regarding Cost of Capital. I am working in Software Company (Pvt.Ltd) and we got a project where we need to invest Rs. 20,00,000/-. Company invest this fund from his own pocket (No Bank loan or others sources has been used for this). So how to I calculate Cost of Capital of this fund??
06 March 2016
There is no one particular rate that can be adopted in all scenarios. i.e. different rates are adopted in different scenarios. Since you are using own funds, the opportunity cost of the funds can be used as cost of capital. So, in case you are putting the funds in bank FD, you will be getting around 8% p.a. It implies that any rate above 8% for investing in business should be OK for you. You may add some additional component also to 8% based on the risk perceived by you in the project and the additional rate you intend to have to offset that risk known Risk Adjusted Discount Rate.
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