Anonymous asked in Business & FinanceCorporations · 10 years ago

Cost of Capital Questions?

1. Why would a financial manager use the overall cost of capital for investment decisions when the specific decision under consideration may be funded by only one source of capital, (e.g., debt or equity)?

2. If a corporation has projects that earn more than the cost of capital, does it need to ration capital?

1 Answer

  • 10 years ago
    Favorite Answer

    No Capital Investment Data Corp. makes can be considered to operate in an encapsulated environment. Everything that happens to the investment materially in packs the entire corporation. To use anything less than overall cost review would be extremely hazardous to the corporation. This is the short version of my answer. Yahoo has worned me that I'm too chatty. The total answer would take a considerable amount of space. Your second question the ration of capital is always a requirement a ball well run institution. It is no different than you handling your own money for your own purchases and expenses.

    Source(s): Financial account with over 30 years experience
Still have questions? Get your answers by asking now.