Different Types of Costs Related to the Cost of Capital

There are several relevant expenses which are associated with the measurement of a company’s cost of capital. These expenses are as follows-

  1. Marginal Capital Cost

A marginal cost is the average value of new or bonus funds which have been collected by organization. It is the present interest on long term debt.

  1. Combined Cost

It is the expense when all sources like equity, debt and preference are taken into consideration. It is even known as weighted expenditure or average expense of capital.

  1. Specific Cost

As its name suggests, it is the type of cost which is associated with the specific component of the company’s capital structure.

  1. Spot Cost

It refers to expenses which exist in the capital market at a certain point of time.

  1. Historical Cost

These expenses are evaluated on the basis of the present capital structure of a company.

  1. Future Cost

Fund prices which finance an expected investment are known as Future capital cost.

  1. Implicit Cost

An expenditure which has already taken place but not shown as a separate expense is known as the implicit capital cost. It is an opportunity price which is regarded as the rate of return related to the best financial opportunity of an investment.

  1. Explicit Cost

It is a discount rate that is equal to the present inflow of cash which are incremental to take the finance opportunity with existing value of cash outflows.

  1. Normalised Cost

Normalised expenditure is a long term price which depicts an estimation of total value with the help of a process of averaging by removing cyclical elements.


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