Chapter

Working Capital Financing Costs

Lorenzo A. Preve and Virginia Sarria-Allende

in Working Capital Management

Published in print March 2010 | ISBN: 9780199737413
Published online May 2010 | e-ISBN: 9780199775637 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199737413.003.0011

Series: FMA SURVEY

Working Capital Financing Costs

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In this chapter, we discuss the financing costs associated with working capital. Given that working capital is financed with both long‐term debt and equity, we identify the corresponding risk associated with each type of contract and explain that the compensation to investors should be different according to the type and size of the underlying risk. After determining the costs associated with these sources of funds, we combine these costs using the concept of weighted average cost of capital.

Keywords: corporate finance; working capital management; cost of capital; corporate strategy; working capital

Chapter.  2507 words.  Illustrated.

Subjects: Financial Markets

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