Bond yields are taken from moodys industry manual and municipal and. In the framework of chapter 4, this was just the interest rate the cost of. The oxford hand book of the economics of the biophar. User cost, capital utilization and investment theory jstor. For example, a project requires an investment of rs. To analyse how inflation affects capital cost we will use the model presented in. Y since v is between 2 and 3 that is, the capital stock is 2 or 3 times. Note that when there are changes in the netoftax price of investment goods from changes in p, c, z, or itc, the user cost becomes rising investment good prices reduce the cost of capital, rising tax subsidies z, itc raise the cost of capital. This paper examines the impact of capital market efficiency on economic growth in india using the time series data on market capitalization, total market turnover and stock price index over the. I0 book value of investment in the beginning, in book value of investment at the end of n years. And the cost of each source reflects the risk of the assets the company invests in. Pdf interest rates, user cost of capital, and housing price. The user cost of capital is the unit cost for the use of a capital asset for one periodthat is, the price for employing or obtaining one unit of capital services.
Capital is invested, disinvested and it depreciates. Download free pdf study materials in financial management. A companys cost of capital is the cost of its longterm sources of funds. In a perfect capital market, where all borrowers and lenders pay and receive a uniform interest rate, the explicit interest cost of loanfinanced investment equals the implicit forgoneinterest cost of selffinanced investment, so the cost is the same whether the firm finances through borrowing or internally. This pdf is a selection from an outofprint volume from the national bureau of economic research. This is the standard user cost of capital expression.
User cost of capital, user cost of capital economic. Measuring capital oecd manual second edition capital in particular of the physical sort plays several roles in economic life. The cost of capital is the companys cost of using funds provided by creditors and shareholders. The user cost of capital is also referred to as the rental price of a capital good, or the capital service price. A related effective average tax rate is also defined for the context in which the firm obtains economic rents that is, earnings above those needed for it to remain in. Financial constraints, the user cost of capital and corporate. The expression on the righthand side of 6, the implicit rental price of capital, is commonly referred to as the user cost of capital. Oecd glossary of statistical terms user cost of capital. The pace and pattern of business investment in fixed capital are central to our understanding of economic activity. Cost of capital has different connotations in different economic philosophies.
896 982 1579 1385 412 342 489 314 1269 782 507 1638 1077 816 1065 827 495 593 265 627 292 409 1331 520 1066 479 1240 337 803 1178 1364 1118 925 723 1144 1489 995 1304 1360 663 1 808