no
it should be ignored
what is capital cost
The cost to be capital its depend upon the company policy whether they should capitalze the cost or not.
capital is a fixed cost
Labor costs should be no more than 20 to 30 percent on a construction project. The cost may be lower for residential projects and higher for commercial projects.
Yes
In order to determine reasonable costs of capital for average, high and low risk projects the firm should develop risk-adjusted costs of capital for each category of risk based on the concept of divisional WACC. If a firm estimates that its cost of capital for the coming year will be 10%, the firm should use 10% as the basis for its average risk projects since the firm will need to achieve a minimum of a 10% return on all its projects. Typically, a high-risk project has the potential for higher returns and a low-risk project will typically yield lower returns. Therefore, the firm could set the cost of capital for its high-risk projects at 12% and the cost of capital for low risk projects at 8%. Since the average risk project has a 10% cost of capital, the overall risk of the firms projects will be equal to the 10% cost of capital. Similarly, if the firm's high-risk projects are particularly risky, they could be set at a 15% cost of capital and the low-risk projects will be adjusted down to a 5% cost of capital. The ultimate goal is that the portfolio of the firm's projects will achieve the required 10% return or greater so that the cost of capital to fund the projects is covered. The assignment of risk is somewhat subjective but it is better than not adjusting the risk at all.
the marginal cost of capital "B"
If the opportunity cost of capital for a project exceeds the Project's IRR, then the project has a(n)
it should be ignored
A change in the cost of capital will not, typically, impact on the IRR. IRR is measure of the annualised effective interest rate, or discount rate, required for the net present values of a stream of cash flows to equal zero. The IRR will not be affected by the cost of capital; instead you should compare the IRR to the cost of capital when making investment decisions. If the IRR is higher than the cost of capital the project/investment should be viable (i.e. should have a positive net present value - NPV). If the IRR is lower than the cost of capital it should not be undertaken. So, whilst a higher cost of capital will not change the IRR it will lead to fewer investment decisions being acceptable when using IRR as the method of assessing those investment decisions.
cost of capital
what is capital cost
The marginal cost of capital (MCC) is the cost of the last dollar of capital raised, essentially the cost of another unit of capital raised. As more capital is raised, the marginal cost of capital rises.
The cost to be capital its depend upon the company policy whether they should capitalze the cost or not.
capital is a fixed cost
Companies may want to implement capital rationing in situations where past returns of investment were lower than expected. For example, suppose ABC Corp. has a cost of capital of 10% but that the company has undertaken too many projects, many of which are incomplete. This causes the company's actual return on investment to drop well below the 10% level. As a result, management decides to place a cap on the number of new projects by raising the cost of capital for these new projects to 15%. Starting fewer new projects would give the company more time and resources to complete existing projects.