Name: Trisha Mae E.

Bujalance Fin 1 - Financial Management

Course & Section: BSAIS – 1A Date: July 8, 2022

Assessment Task 7

Discussion:

1. Explain briefly the concept of marginal cost of capital.

The marginal cost of capital is the sum of the costs of debt, equity, and preference, taking into account
their relative weights in the real value of the company; this cost shall be used to represent the cost of
raising any additional capital for the organization, which assists in the analysis of various financing options
and decision-making. Before investing in a company, shareholders and debt holders look for a certain rate
of return. As a corporation raises more money, the marginal cost of capital typically rises. This is due to
the limited availability of capital. Knowing the marginal cost helps the business decide on the best revenue
margin for sustaining sales and boosting profitability. The marginal cost of production is a unit used to
calculate how much a product's price changes when an additional unit of output is produced.

2. Explain briefly the relevance of the marginal cost of capital (MCC) schedule.

The MCC Schedule shows how the amount of new capital raised and the price of equity capital relate
to one another. A graph called the MCC Schedule compares the firm's weighted average of each capital
dollar to the total amount of fresh capital raised. The relationship between a firm's weighted average of
each dollar of capital and fresh capital raised is illustrated by a graph. Analysts can see in the timetable
how the cost will vary as a result of cash raised.

The cost of various sources of capital may change as a company raises more money for a variety of
reasons. These include;

- It's possible that a business won't be able to raise debt of the same kind in the future.
- The results of tests on the company's debt structure might prevent them from raising
money through debt with a similar seniority level.
- The marginal cost of capital would rise to account for any deviations from the company's
current capital structure.