Cost of Capital - Redefined

Employment of capital in the production, its generation into cost and its subsequent recovery through ‘recovery of cost’ involves a time lag in the process. The owner of capital is paid a price known as cost of capital as compensation of such deprivation of fund for the said time lag. Hence, from the corporate perspective, funds should be procured from the source that minimizes cost of capital. In this context, while reviewing the existing and conventional methods of finding out cost of capital, we find certain drawbacks and loopholes in those models. In this backdrop, the general objective of this book, ‘Cost of Capital - Redefined’, is to evaluate the capital structure of some selected listed non-banking and non-finance companies in the Indian private sector by determining the cost of capital by means of a new model (EOR) developed on the basis of outflow of funds for maintaining capital. This study is a pointer to the need of taking a fresh look on the part of the companies for determining the favourable source from which the required capital should be procured.