The price of the capital advanced

Implementation of any kind of enterprise or organization associated with certain costs, to cover which can be used various funding sources. Generally, business entities to finance their operations using not one but several sources. This is due to several factors. Firstly, the limitation of the source of funding for the resource. For example, to implement a large project can be used budgetary funds, individual companies and associations interested in its implementation, the funds of credit institutions. Each of the mentioned sources of funding alone does not ensure the performance of work in full, so they hired to implement activities in the aggregate. This is true for the enterprises' own funds. Due to the precarious financial situation of many of these implementation of modernization, expansion and reconstruction of production from existing resources is difficult. Therefore, as a rule, to implement the planned measures used means of various funding sources. Second, the provision of financial resources may be limited timeframe. This is typical for today's unstable stage of economic development, when investors in order to reduce and prevent risks tend to reduce the time in cash, why dominant among credit short and medium term, and thirdly, one of the constraints may be a price the means. Credit resources are usually quite expensive, and often their price exceeds the expected rate of profit from the sale of the intended action. Therefore, the financing may be made only high-impact projects that provide income in excess of costs credited to operations. In addition, the emergence and development of a market economy led to the emergence of new sources of funding, which provides businesses the possibility to choose the most rational and profitable one. Often the use of various sources of funding required by the needs of the production process. If the enterprise funds are needed for the continued operation of its turnover, it may get them through the issuance of shares. If along with this there is a need for financial resources for a certain time interval, the source of them can be a bank loan or bond issue. Thus, the condition ¬ Via economy initially necessitate the use of turnover funds received from different sources. Raising funds from any source of financing costs associated with, which represent the cost of capital, aimed at financing the investment. The price of capital - is money paid by the owners (investors) for the use of their resources. It is calculated as a percentage and is determined by dividing the sum of money paid for the use of financial resources, the amount raised from this source of capital. The composition and proportion of individual sources of financial resources in their total value characterize the capital structure. The capital structure of funding sources is not constant, its dynamic influence numerous factors, such as the financial condition of the enterprise; timeliness of payments to suppliers, budget, company employees, the use of economic exchange loans from banks and other creditors, the firm's dividend policy and other . Changes in capital structure associated with fluctuations in the proportion of individual sources of financial resources. And since the price of various sources of funding varies, it causes vibrations and the average price of capital. The average price of capital is calculated as a weighted arithmetic mean. The algorithm for determining the average cost of capital is the following: definition of the share of each source of funds in their total amount, to calculate the cost of funds for each source of funding: a) ordinary shares, b) preferred shares, and c) bonds, r) of bank loans, d) in accounts payable; determination of the average cost of capital. The possible options for calculating the average cost of capital in the context of equity and debt. The most difficult to determine the average cost of capital is to calculate the value of individual sources of funding. Maintenance costs of equity are dividends paid to shareholders. Since conditions and manner of payment of dividends on preferred and common stocks are different, the cost of capital, attracted by the emission of these shares will be different. Upon payment of dividends on certain observed sequence. In the first set dividends on preferred shares, and then - as usual. However, the dividend on preferred shares also have a procedure for payment. Initially, the dividends paid on shares that have priority in the receipt of the dividend, then - on direct preference shares at the end - on preferred shares, the dividend is not defined. Total dividends on preferred stock is defined as the product of the dividends declared for the payment of the appropriate type of preferred shares, the number of preferred shares of the corresponding type. In determining the price of capital that is raised by issuing common stock, to consider additional sources of internal funding. Thus, the existence of undistributed profits of the enterprise is in fact delayed the potential dividends of the shareholders. The cost of funding source, "retained earnings" could be defined by income, which would be obtained if the potential investment of dividends to the bank or investing in any other direction. Thus, the price of this source of funding is determined at the same level of profitability as the ordinary shares in circulation. The amount of dividends on ordinary shares is determined as the product of the dividend on common stock by the number of ordinary shares. Borrowings as a rule, include resources mobilized through the placement of bonds, loans and accounts payable. The issue bonds compared with other securities are usually given preference in the event that the owner is trying to retain the ownership and disposition of property. When buying bonds of the issuer of the investor becomes a creditor. Bond issue, as is the use of economic exchange company credit involves borrowing funds for a certain period of time, after which there are obligations to return the debt to the payment of the interest. In the case where the firm needs a constant and long-term (perhaps for the entire period of the enterprise) financing will be more appropriate to issue shares. However, the evidence shows, even in countries with developed capital market in the foreground are the loans, in addition to that involved in bond issues. If we assume the costs of placement of bonds, they are lower than in the issuance of shares. This is explained by the fact that in many countries with developed market economies, the interest on the bonds are paid out of profits to its taxation. In our country, established a procedure of interest payments to bondholders from the net profit, ie, after-tax income, so their release is a pretty high cost. As part of the main ones being leveraged loans. In determining their value, be aware that interest on certain target short-term bank loans are included in the cost of production. Their inclusion in the cost of production and sales for tax purposes is made within the discount rate of the Central Bank increased by three points. Thus, this portion of the interest payments serves as a tax shield. Payments in excess of the marked standard such adjustments are not subject. With regard to long-term debt (related to the acquisition of fixed assets, intangible assets and other noncurrent assets), the interest thereon shall be paid from profits remaining at the disposal of the company after payment of taxes and other obligatory payments. If we talk about the specific amount of interest for using a bank loan, in countries with developed market economies, bank loans are the cheapest source of financing. In the Russian Federation, the price of such a source is quite high, so it is often simply not available to entrepreneurs. The high level of interest rates in the Russian Federation, which is usually much higher than in developed countries, largely due to sharp fluctuations in the CBR refinancing rate. A similar situation is typical for the profitability of short-term obligations. By some estimates, in countries with developed market economies, the average profit rate of about twice the average rate of interest. This is explained by the difference in the rate of turnover of productive and fictitious capital. If the comparison as the average rate of interest even to the CBR refinancing rate (in 2004 - 28%), the average rate of return should be at about 40%. In fact, its prevalence is much lower. For example, the results of the 2004 level of profitability of industrial production amounted to about 9%, which is almost 4.5 times lower than the standard value. This suggests that the loans are quite expensive, and in most cases, companies rely on their own financial resources. The source, an alternative credit for the purchase of equipment and other fixed assets are leasing. Their implementation was made possible thanks to the emergence of the firms specializing in the rental business. Having several options for financing the project involves the selection of the optimal one, ie, one that would provide satisfaction of the company and thus would be most economical. When comparing the effectiveness of leasing as a base of comparison should be the option of purchasing the equipment at the expense of the company credit, because if there is no need to own opportunities leases Choosing the final decision in favor of one or another variant of the acquisition of an asset depends on a number of factors influence the features of the tax legislation, special conditions of the lease contract, more or less preferred credit conditions, etc. Therefore, only a thorough analysis of all the "pros" and "against" on a specific object of investment can give a correct and reasonable response. In determining the price of capital must also be taken into account payables. If the accounts payable is not overdue, it is assumed that the company does not carry on its costs, as provided by the conditional equilibrium between issued and received by commercial loans. A completely different situation arises when an enterprise has overdue payables, as it costs the company much more expensive. The formation of such debt leads to significant fines, penalties and other sanctions. Thus, enterprises are growing costs of servicing outstanding debt, and they must be taken into account when calculating the average cost of capital. The average price index of capital performs several functions. First, it can be used within an enterprise to assess the effectiveness of various proposed investment projects. It shows the lower limit of profitability of the project (maximum bet). In evaluating the effectiveness of all projects are ranked in terms of profitability, and to implement the proposals made to ensure profitability in excess of the weighted average cost of capital. In Russia, the data for this indicator over time are lacking, but its use as a tool for assessing the effectiveness of investment projects is very important and necessary. Second, this indicator is used to assess the capital structure and to determine its optimality. The optimum value for such a capital structure that ensures minimal maintenance costs of capital advanced and determined it by a variant with a minimum average cost of capital. Question the relationship of structure and price of capital is quite controversial among scientists and economists on it there is no single point of view. Thus, the known concept of weighted average cost of capital - Modigliani theory - Miller and the traditional theory. American scientists have known Miller and Modigliani argued that the relationship problems of capital structure and its prices, in fact, does not exist, therefore optimal capital structure, they are not considered. Supporters of the traditional theory, by contrast, are based on the interdependence of structure and price of capital. As noted above, the use of borrowed funds (in particular, bank loans, bond issues) costs the company a little bit cheaper than, for example, the issue of shares. Therefore, additional loans are often involved in it for these reasons. At the initial stage of financing an increase in the proportion of cheaper debt capital reduces the average price of capital, but it increases the financial risk associated with an increase in the proportion of debt that threatens to shareholders. As a result, the costs of the shares increases. For the price of debt capital is characterized by the fact that initially it remains unchanged, but with the increasing dependence of businesses from outside investors and increases the risk of investing in it, so the price of debt is also beginning to grow gradually. As a result, the average price of capital increases.