CA Intermediate Exam > CA Intermediate Videos > Crash Course for CA Intermediate > Cost of Capital - 1
Cost of Capital - 1 Video Lecture | Crash Course for CA Intermediate
FAQs on Cost of Capital - 1 Video Lecture - Crash Course for CA Intermediate
| 1. What is the cost of capital and why is it important for businesses? |  |
Ans. The cost of capital refers to the minimum return that a company must earn on its investments to satisfy its investors, both equity and debt holders. It is crucial for businesses as it serves as a benchmark for evaluating investment opportunities. If the expected return on an investment is less than the cost of capital, the investment may not be worthwhile, potentially leading to losses and diminishing shareholder value.
| 2. How is the cost of equity calculated? | |
Ans. The cost of equity can be calculated using models such as the Capital Asset Pricing Model (CAPM). The formula is: Cost of Equity = Risk-Free Rate + Beta × (Market Return - Risk-Free Rate). Here, the risk-free rate is the return on government bonds, beta measures the stock’s volatility in relation to the market, and the market return is the average return expected from the market. This calculation helps determine the return required by equity investors.
| 3. What factors influence the cost of debt? | |
Ans. The cost of debt is influenced by several factors including the risk associated with the company, prevailing interest rates, the company's credit rating, and the terms of the debt. Higher perceived risk leads to higher interest rates, while a lower credit rating can also increase borrowing costs. Companies with stable cash flows generally enjoy lower costs of debt due to reduced risk for lenders.
| 4. What is the weighted average cost of capital (WACC) and how is it calculated? | |
Ans. The weighted average cost of capital (WACC) represents a company's average cost of capital from all sources, including equity and debt, weighted by their respective proportions. The formula is WACC = (E/V × Re) + (D/V × Rd × (1 - Tc)), where E is the market value of equity, V is the total market value of the firm (equity + debt), Re is the cost of equity, D is the market value of debt, Rd is the cost of debt, and Tc is the corporate tax rate. WACC is essential for assessing investment decisions and overall business performance.
| 5. How does the cost of capital affect investment decisions? | |
Ans. The cost of capital significantly impacts investment decisions as it sets the hurdle rate for new projects. If the expected return on a project exceeds the cost of capital, it is considered a viable investment opportunity. Conversely, projects yielding returns below the cost of capital may lead to a decrease in overall company value. Thus, understanding and accurately estimating the cost of capital is fundamental for making informed strategic choices in resource allocation.
About this Video
4.84/5
Rating
Sep 30, 2025
Last updated
Related Exams
Video Description: Cost of Capital - 1 for CA Intermediate 2025 is part of Crash Course for CA Intermediate preparation.
The notes and questions for Cost of Capital - 1 have been prepared according to the CA Intermediate exam syllabus.
Information about Cost of Capital - 1 covers all important topics for CA Intermediate 2025 Exam.
Find important definitions, questions, notes, meanings, examples, exercises and tests below for Cost of Capital - 1.
Introduction of Cost of Capital - 1 in English is available as part of our Crash Course for CA Intermediate for CA Intermediate & Cost of Capital - 1 in
Hindi for Crash Course for CA Intermediate course. Download more important topics related with notes, lectures and mock test series for
CA Intermediate Exam by signing up for free.
Description
Video Lecture & Questions for Cost of Capital - 1 Video Lecture | Crash Course for CA Intermediate - CA Intermediate full syllabus preparation | Free video for CA Intermediate exam to prepare for Crash Course for CA Intermediate.
Information about Cost of Capital - 1
Here you can find the meaning of Cost of Capital - 1 defined & explained in the simplest way possible.
Besides explaining types of Cost of Capital - 1 theory, EduRev gives you an ample number of questions to practice Cost of Capital - 1 tests,
examples and also practice CA Intermediate tests.
Related Searches
Previous Year Questions with Solutions
,past year papers
,Semester Notes
,practice quizzes
,Important questions
,mock tests for examination
,ppt
,Extra Questions
,Viva Questions
,video lectures
,Cost of Capital - 1 Video Lecture | Crash Course for CA Intermediate
,Free
,Sample Paper
,MCQs
,Cost of Capital - 1 Video Lecture | Crash Course for CA Intermediate
,study material
,Summary
,Objective type Questions
,Cost of Capital - 1 Video Lecture | Crash Course for CA Intermediate
,Exam
,shortcuts and tricks
;
Study Cost of Capital - 1 on the App
Students of CA Intermediate can study Cost of Capital - 1 alongwith tests & analysis from the EduRev app,
which will help them while preparing for their exam. Apart from the Cost of Capital - 1,
students can also utilize the EduRev App for other study materials such as previous year question papers, syllabus, important questions, etc.
The EduRev App will make your learning easier as you can access it from anywhere you want.
The content of Cost of Capital - 1 is prepared as per the latest CA Intermediate syllabus.
|
© EduRev
|
Education Revolution
|
|
Signup on EduRev and stay on top of your study goals
10M+ students crushing their study goals daily