How does a fi rms tax rate affect its cost of capital What is the Essay

How does a fi rms appraise rate affect its address of neat What is the effect of the flotation - Essay ExampleThe bell of capital can be calculated using valuation models such as CAPM or merchandise Pricing Model.Like all affairs of a business, the cost of capital is also affected by numerous factors, some within and some beyond the organizations control. One of the factors which greatly affects the cost of capital and is beyond the control of the organization is the assess rate. Tax rate refers to the percentage of earning/spending which is contributed to the government. on that point are several types of taxes, relevant on different economic units, such as the income tax applicable on individuals, corporate tax applicable on corporations, sales tax applicable to sellers etc. Of particular concern in an organization are the corporate tax rate and the capital gains tax. The corporate tax rate is used to calculate the cost of debt in the weighted average cost of capital. The higher the tax rate the glare will be the cost of capital since the interest net incomements are tax deductible. The capital gains tax, on the other hand, is applicable to owners of capital in the organizations, i.e. the shareholders. An appreciation in the ownership of share prices requires the shareholders to pay a specific percentage (varies from country to country) to the government. In such a brass, the higher the capital gains tax, the lower will be the motivation of shareholders to hold their stocks. The tax rate structure applicable in a country determines the capital structure of a firm. If the corporate tax rate is higher than the capital gains tax rate then the structure will comprise of more debt and less shares and vice versa.In case an organization does not directly take a loan from a bank or fiscal institution, it may issue securities. Securities refer to any instruments (negotiable or non-negotiable) which allows an organization to raise funds, while floatation c ost refer to the expenses incurred by the organization to issue new securities. These include underwriters