Respuesta :
Interest is the financial cost that a company pays for borrowing money capital in order to purchase extra capital.
The business requires money to be invested in two stages. The first one is when the business is set up. the second one is when the business is going on. The interest that the company pays on the money that is borrowed is called the cost of capital.
The decision of where to get the money capital is very important. The company arranges to obtain capital both inside and outside the business. The internal cost of capital is when the company issues debentures. The internal cost of capital is also calculated on the extra capital put in by the entrepreneur and this is known as the opportunity cost of capital.
The external cost of capital is the money capital that is arranged from outside sources like banks and financial institutions. The interest that is to be paid on the capital borrowed will decide what decision the company has to take for deciding from where to obtain the capital. If this is not evaluated before taking the money capital, it may lead to a loss to the company.
Learn more about the internal sources and external sources of capital here:
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