This is the amount on which you first claim CCA. The capital cost of a depreciable property is usually the total of the purchase price, not including the cost of land (which is not depreciable);the part of your legal, accounting, engineering, installation, and other fees that relates to the purchase or construction of the depreciable property (not including the part that applies to land);the cost of any additions or improvements you made to the property after you acquired it, provided you have not claimed these costs as a current expense; and soft costs (such as interest, legal and accounting fees, and property taxes) related to the period you are constructing, renovating, or altering the building, if you have not deducted these expenses as current expenses.
Legal and accounting fees for the purchase of a rental property are allocated between the cost of the land and the capital cost of the building. If land is acquired for rental purposes or for construction of a rental property, the legal and accounting fees apply to the land.
The cost of capital for a firm is a weighted sum of the cost of equity and the cost of debt (see the financing decision).
Similarly to the cost of debt, the cost of equity is broadly defined as the risk-weighted projected return required by investors, where the return is largely unknown.
The cost of equity is calculated as the "expected" return on equity during a past or future period (usually a year or annualized) based on interest rate levels and historical average equity market return.
A profit maximizing firm will continue investing until the marginal productivity of capital becomes equal to the opportunity cost of capital; therefore, "cost of capital" in the Islamic system can be represented by the rate of return on alternate opportunities for investment of comparable risk.
The model implies that a firm's cost of capital (r) is a function of a firm's q ratio and the firm's market value (V), stream of expected future earnings (Y), ratio of retained earnings, and new stockfinancing.
For example, we are interested in finding the cost of capital for a firm with future expected earnings for next year (Y) of $1,000,000 and equity value of $10,000,000 (since there is no debt financing, value of the firm is equal to equity value).
Share your thoughts, questions and commentary here
Want to know more? Search encyclopedia, statistics and forums:
Press Releases |
The Wikipedia article included on this page is licensed under the
Images may be subject to relevant owners' copyright.
All other elements are (c) copyright NationMaster.com 2003-5. All Rights Reserved.
Usage implies agreement with terms, 1022, m