Cost of Finance

For every business one venture into it is expected that one should have the ideas in such a business coupled with the businessdrive for Him/Her to swing into action, going into business is good but staying in business matters so much and for one to stay in business capital is needed to start up that business you may have the business ideas with great businessdrive, let's not forget in haste we should able to site down and consider the cost of finance.
A very important element in decisions about the use of any resources is the cost of that resources, this is true of finance just as much as it is of anything else. Cost of financing a businessdrive is generally termed the cost of capital, then what is capital here capital is that wealth that is set aside for the further creation of other wealth. Individual components and also the way also the way in which they combine to give an appropriate overall cost of capital, such cost is normally expressed like a rate of interest.
The cost of capital is used to derive a decision rate for the discounted cash flow methods of investment appraisal. Cost of capital is an opportunity cost of finance. Here are the three element of cost of capital;
 A risk free rate of return.
 A premium for business risk.
 A premium for financial risk.