Sökning: (AMNE:(SOCIAL SCIENCES Business and economics)) pers:(Lindblom Ted 1956)
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The Role of Trade C...
The Role of Trade Credit and the Cost of Capital
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- Lindblom, Ted, 1956 (författare)
- Gothenburg University,Göteborgs universitet,Företagsekonomiska institutionen, Industriell och Finansiell ekonomi & logistik,Department of Business Administration, Industrial and Financial Management & Logistics
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- Sandahl, Gert, 1944 (författare)
- Gothenburg University,Göteborgs universitet,Företagsekonomiska institutionen, Industriell och Finansiell ekonomi & logistik,Department of Business Administration, Industrial and Financial Management & Logistics
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(creator_code:org_t)
- 2012
- 2012
- Engelska.
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Ingår i: The European Association of University Teachers of Banking and Finance Annual Meeting, Aug. 29 - 1 Sept., Valetta, Malta.
- Relaterad länk:
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https://gup.ub.gu.se...
Abstract
Ämnesord
Stäng
- Abstract In this paper we show that working capital in the form of trade credit may constitute a significant share of firms’ debt capacity. Despite its character of a short-term debt, such capital seems to be a long-term element of the financial structure of the firm. This has implications for the determination of the cost of capital. We analyse the cost of different types of working capital in the context of firms’ investment appraisal arguing that cash com¬mitted to trade credit extended by suppliers should generally be omitted from free cash flow. The required rate of return should then be based on the total weighted average cost of capital, which includes the implicit (market based) interest cost of trade credit. We argue that the opportunity cost of trade credit should be expected to be higher than the average interest cost of interest-bearing debts albeit lower than the partial weighted average cost of capital based on long term (interest-bearing) debt and equity capital. Hence, in a (near) optimal capital structure, the total weighted average cost of capital would be lower than the partial weighted average cost of capital
Ämnesord
- SAMHÄLLSVETENSKAP -- Ekonomi och näringsliv (hsv//swe)
- SOCIAL SCIENCES -- Economics and Business (hsv//eng)
Nyckelord
- Cost of capital
- trade finance
- working capital
- capital budgeting
Publikations- och innehållstyp
- vet (ämneskategori)
- kon (ämneskategori)