Highlight four uses of the cost of capital to a limited liability company.

CPA-Financial-Management-Section-3 Revision kit

Uses of cost of capital
– In determining the optimal mix of debt and equity.
– Using in project appraisal in computing N.P.V.
– Evaluating managerial performance on ability to generate % return above the cost of securing capital.
– Dividend decisions – do we retain more profits (pay low dividends) since retained profits is a cheaper source of finance compared to issue of shares?
– In make lease or buy decisions.

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