EUROPEAN JOURNAL OF ACCOUNTING, FINANCE & BUSINESS

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ISSN: 2344 - 102X

ISSN-L: 2344 - 102X



 

Article from Volume 8, Number 3, Year 2020

ANALYSIS ON THE CAUSALITY RELATIONSHIP BETWEEN INVESTMENTS AND THE CAPITAL'S MARGINAL COST
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Author(s): Irina Cibotariu
DOI: 104316/EJAFB.2020.838
Abstract: Capital's cost is the result of two kinds of behaviours, namely the entrepreneur's behaviour, on the one hand, and the investor's behaviour. These two types of behaviours have a common background, namely maximizing the value of the business entity. The business entity itself can be considered as the very expression of the financing costs which are part of the optimization process of its financial strategy. The diversity of the investment options requires the assignment of those financial resources which are based on estimating the entity's value which refers to the conversion of the future incomes into the present turnover of the business as such. Thus, there is an occasional cost from the point of view of the investors, whereas for the users, there is an average cost involved due to the fact that one needs to take into account the existence of the financial structure itself which is responsible for the existence of both the equity and the loan capital.
Keywords: Capital's Cost, Investments, Marginal Cost; Profitability, Investors, Financial Structure, Loan Capital, Financing Decision
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