Post-deregulation developments have required a significant renewal of the foreign exchange and investment instruments. They also make it mandatory to revamp policies, including incentives needed to encourage the free flow of capital across borders. Capital markets are affected. The cost of capital is the minimum acceptable level used to determine whether or not to invest in a project. When evaluating the costs of equity, common methods of measurement are CAPM, the arbitrage pricing model, and the multifactor model.
Market risk affects the cost of raising equity.
Changes in interest rates, inflation rates, and the economy contribute to market risk. Companies finance debt in a variety of ways. Firms can issue stock, corporate bonds, commercial paper, or borrow money to finance projects. The weights of debt and equity components are assigned using market value. Preferred stock is issued to raise capital.