Question :State any four factors affecting the decision that determines the overall
a cost of capital and the financial risk of the enterprise.
The correct answer is -The following are four factors affecting the decision that determines the overall cost of capital and the financial risk of the enterprise:
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Interest Rates: Interest rates are the cost of borrowing money and play a significant role in determining the cost of capital. Higher interest rates result in a higher cost of capital.
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Market Conditions: Market conditions such as the availability of funds, investor preferences, and economic conditions can also affect the cost of capital.
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Financial Policies: The financial policies of the company such as the dividend payout ratio, the use of debt, and the level of retained earnings can also affect the cost of capital.
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Business Risk: The business risk of the company can also impact the cost of capital. Higher business risk is generally associated with a higher cost of capital. Factors that can increase business risk include market competition, technological changes, and regulatory changes.
