Which financial ratio is a measure of the ability of the company to meet all of its fixed charge obligations?

What do we call the cost that a borrower must pay to use debt capital

Firstly, "Cost of capital" is merely the financing cost the organization must pay when borrowing funds, either by securing a loan or by selling bonds, or equity financing. In either case, the cost of capital appears as an annual interest rate, such as 6%, or 8.2%.

What is called cost of capital

Cost of capital represents the return a company needs to achieve in order to justify the cost of a capital project, such as purchasing new equipment or constructing a new building. Cost of capital encompasses the cost of both equity and debt, weighted according to the company's preferred or existing capital structure.

What is cost of debt and cost of equity

Difference between Cost of Debt and Cost of Equity:

What is meant by flotation cost

Flotation costs are costs a company incurs when it issues new stock. Flotation costs make new equity cost more than existing equity. Analysts argue that flotation costs are a one-time expense that should be adjusted out of future cash flows in order to not overstate the cost of capital forever.

What is cost of preference

Cost of preference share capital is that part of cost of capital in which we calculate the amount which is payable to preference shareholders in the form of dividend with fixed rate.

Whats the meaning of debt capital

Debt capital refers to borrowed funds that must be repaid at a later date. This is any form of growth capital a company raises by taking out loans. These loans may be long-term or short-term such as overdraft protection. Debt capital does not dilute the company owner's interest in the firm.

What two components make up the cost of using equity capital

EXPLANATION: The 2 components of the cost of common equity are common stock and retained earnings.

What do you mean by cost of debentures

Definition: The cost of debt is the monetary price of servicing the interest and principal payments of obligations used to raise capital for a company. In other words, it's the price companies pay to acquire and keep debt.

What does cost of equity represent

A firm's cost of equity represents the compensation that the market demands in exchange for owning the asset and bearing the risk of ownership. The traditional formula for the cost of equity is the dividend capitalization model and the capital asset pricing model (CAPM).

How do you find cost of debt

How to calculate cost of debt

1. First, calculate the total interest expense for the year. If your business produces financial statements, you can usually find this figure on your income statement.
2. Total up all of your debts.
3. Divide the first figure (total interest) by the second (total debt) to get your cost of debt.

Why is cost of debt lower than cost of equity

Well, the answer is that cost of debt is cheaper than cost of equity. As debt is less risky than equity, the required return needed to compensate the debt investors is less than the required return needed to compensate the equity investors.

What is Term equity

The term “equity” refers to fairness and justice and is distinguished from equality: Whereas equality means providing the same to all, equity means recognizing that we do not all start from the same place and must acknowledge and make adjustments to imbalances.

What are some examples of indirect financial distress cost

These include Tobin's q, R&D and advertising expenditures, an index of asset specificity and an index of the probability of bankruptcy.

When debt capital exceeds owned capital it is called

low capital gearing.

What is cost of capital and its types

ADVERTISEMENTS: The cost of each component of capital is known as specific cost of capital. A firm raises capital from different sources such as equity, preference, debentures, etc. Specific cost of capital is the cost of equity share capital, cost of preference share capital, cost of debentures, etc., individually.

How is cost of capital calculated

The cost of capital is based on the weighted average of the cost of debt and the cost of equity.
In this formula:

1. E = the market value of the firm's equity.
2. D = the market value of the firm's debt.
3. V = the sum of E and D.
4. Re = the cost of equity.
5. Rd = the cost of debt.
6. Tc = the income tax rate.

What is cost of capital and its components

Cost of capital is a composite cost of the individual sources of funds including equity shares, preference shares, debt, and retained earnings. The individual cost of each source of financing is called a component of the cost of capital.

What is cost of capital and its importance

The cost of capital is very important concept in the financial decision making. Cost of capital is the measurement of the sacrifice made by investors in order to invest with a view to get a fair return in future on his investments as a reward for the postponement of his present needs.