CAPITAL COST QUANTIFICATION MODEL IN BUSINESS ACTIVITY PLANNING: THE EVIDENCE OF THE MIDDLE EUROPE COUNTRIES
CAPITAL COST QUANTIFICATION MODEL IN BUSINESS ACTIVITY PLANNING: THE EVIDENCE OF THE MIDDLE EUROPE COUNTRIES

Summary/Abstract: Costs of capital are the most important measure for evaluating financial decisions. Cost of capital is the minimum rate of return that a business must earn before generating value. Before a business can turn a profit, it must at least generate sufficient income to cover the cost of the capital it uses to fund its operations. This consists of both the cost of debt and the cost of equity used for financing a business. Costs of capital determine not only the degree of obstacles for investment projects, but also the composition of the company's capital structure. In addition, the determinants of the cost of capital (in particular the cost of equity) are relevant to the literature on a basic analysis that seeks to clarify the evaluative role of accounting. The aim of the article is to form a model for the calculation of the cost of capital on a sample of 3,583 companies in Central European countries. The model was formed using the principles of the linear regression analysis on the samples of both individual countries and Visegrad group. In linear regression, the relationships are modeled using linear predictor functions whose unknown model parameters are estimated from the data. The results of the realized regression models underline the most significant predictors for each country when estimating the costs of capital, which can help these companies to plan their further business activities.

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