No need to write conclusion and make sure not to write any difficulties of cost of capital

Several factors point toward the importance of the cost of capital (CoC) for listed companies. First it can be represented as the overall cost of financing to the firm. But what does the terminology of cost of capital stands for, according (Brealey, Myers and Allen) page (239) a company’s cost of capital defined as “the expected return on a portfolio of all the company’s existing securities”. Yet the cost of capital definition differs from different perspectives. First investors consider the cost of capital as the return they receive from lending their savings to such firm. However, from the financial manager side the cost of capital is defined as the rate that should be used to discount to the rate of return on assets (3). Whereas capital is available to a firm from two sources debt and equity, and it can be calculated by blending the cost of equity and the cost of debt. Mainly making such funding choices is not a simple concern, here it comes the importance of determining a firm’s cost of capital. The main application of the concept of the cost of capital is choosing a suitable choice among potential uses and sources of funds. Any listed company goal is to maximize its profits and minimize the costs at the same time, thus calculating the cost of capital is essential. When a firm receives different projects proposals making the right decision do not relay on finding the most profitable potential choice. The decision of accepting a proposal or not is taken by finding the most profitable and less costs one. Here it comes the application of the CoC, because of its concept of choosing a suitable choice among potential uses and sources of funds. This paper will examine at its first part the importance of calculating the cost of capital, secondly it will explain what are the problems that might be faced when calculating the CoC from a financial point of view.

A firm’s primary aim is to boost its profitability, whereas maximizing the profit is linked with limiting costs, reaching this goal needs to locate the prober policy by considering two aspects: investment decision and transformational style. So it considered within the most important criteria used in institutions’ evaluation by comparing the estimated CoC with a project expected benefits.
Another use for the average cost of capital discount by financial officers is to reach the present value of the future cash flows of a project. Further uses are for evaluating common stock and preferred shares. ………….
Another advantage from calculating the cost of capital comes from its pertinence with the risk rate as the asset capital pricing model (CAPM) present it. It appears as a horizontal line starts at the minimum rate of return that a firm should require for accepting any project. The CAPM also take in account the risk rate (which represented as beta) for determining project efficiency. Unfortunately CAPM is unrealistic model because it is built on assumed assumptions when this dissent our real life (4)
"Given that resources are finite, the cost of capital can be used as a criterion for choosing among potential funds sources and uses. In this sense, a corporation or individual faces two decisions: where to invest and where to raise funds. Hence, to determine the optimal allocation of the savings alternative investments should be ranked. To do this, the cash flows produced by these alternative options must be set up on the same time framework so that the different opportunities are comparable.