Factors that you need to consider to have an optimal cost of capital

In order to assess alternative sources of capital, we need to start by considering their costs to the company. The aim of an analysis of the cost of capital will be to arrive at the optimal balance between equity and debt capital. In undertaking this task, it will be evident that each organization has a unique set of circumstances that need to be taken into account. There are some factors that you need to consider to have an optimal cost of capital:

1. The risk involved in the organization’s future strategies

2. Company attitudes to risk

3. The risk in the industry

4. Competitor’s costs of capital and capital structures

5. Possible trends in interest rates and factors that might substantially alter these, such as national economic performance