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Cost of Capital and Methods of Charging Interest
Abstract
In the course of running a business, debt and equity are employed in the financing decision. The employment of debt and equity in the financing mix of an enterprise involves costs. The investing farmer should keep track of the cost of capital invested in an enterprise if only to ensure that they do not exceed the returns. It is against this background that this chapter is devoted to the cost of capital ad methods of charging interest. It is concluded that it makes business sense to equip farmers with the knowledge that interest rate on loans is subject to negotiation and that the amount paid as interest on a loan depends on the method adopted in calculating the interest rate. It is recommended that in employing funds for running an enterprise, the farmer should be committed to the obligations of due repayment and also make profits from the borrowed funds.
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