Financial Modeling Terms – Wall Street Journal
Cost of Capital
Trentmann, Nina. “Small Businesses Fear Spike in Cost of Capital After Brexit.” The Wall Street Journal. 2017. Available at: https://www.wsj.com/articles/small-businesses-fear-spike-in-cost-of-capital-after-brexit-1504510201
The article reports on the potential costs of capital that could affect small businesses in Europe following Brexit hit for their banks. According to Trentmann, financial institutions in the UK could suffer restructuring expenses and additional capital needs. The author uses the concept of financial modeling, particularly the cost of capital to provide evidence that small businesses in the UK could do necessary capital budgeting projects. The opportunity cost of the small businesses to invest in business will demand that the management consider initiatives and projects that will produce returns that supersede the cost of capital. The hike in bank overdraft fees represents another evidence the author cites to depict the concept of cost of capital because it would be expensive for small firms to get finance after the UK exit the block. Furthermore, the article enhances individual understanding of the term “cost of capital” as the cost of money that small companies will use for financing. Given that a small company in the UK uses funds provided by investors, thus the Brexit would affect the cost of equity.