The capital structure of many companies includes two or more components, each of which has its own cost of capital. Such companies may be said to have a complex capital structure. The major components commonly found are:
Similarly, a project being considered in a capital budgeting decision may be financed by multiple components of capital.
In a complex capital structure, each of these general components may have subcomponents, and each subcomponent may have a different cost of capital. In addition, there may be hybrid or special securities, such as convertible debt or preferred stock, warrants, options, or leases.
Now, each of these components will be discussed in detail:
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