Master Note of Accounting and Finance

Meaning of Cost of Capital Capital is the money that is required for business day-to-day operation and future growth. There are mainly four types of shareholder's capital includes common stock, preferred stocks, debt capital (bonds and debentures) and retained earnings. Cost of capital is the weighted average cost of various sources of fund like equity and debt. It is the minimum rate of return that a company expects to earn from its investment in order to maximize the value of the firm in the market. Components of Cost of Capital Generally, there are three types of financing used by the firm include debt, preferred stock and equity. The equity further two types includes internal equity (common stock) and external equity (retained earnings). So based on these sources of fund, there are mainly four components comes for calculating cost of capital of the firm described as bellows: Cost of Debt (Kdt): It is the effective interest rate that a company is paid on its debts. It

Meaning of Assets  Assets are the items or properties owned by person or company having value to meet various financial needs. The assets can be classified into three categories. They are Based on Convertibility: The assets that can be whether converted into cash quickly or not. It could be current (cash and cash equivalents assets) and fixed (real) assets. Based on Physical Existence: The assets that can be seen and having physical appearances. It could be tangible and intangible assets. Based on Usages: The assets having various business purposes. It could be operating and non-operating assets. As per the first category of division of assets, can be seen as in the presented table bellows: Table: Asset Classification Note: Financial Assets often considers as marketable securities that is one of the component of current assets. Concept of Financial Securities Security is a financial instrument or financial asset that can be traded i.e. bought or sold. The financial asset in