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Working Capital Management$
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Lorenzo Preve and Virginia Sarria-Allende

Print publication date: 2010

Print ISBN-13: 9780199737413

Published to Oxford Scholarship Online: May 2010

DOI: 10.1093/acprof:oso/9780199737413.001.0001

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Working Capital Financing Costs

Working Capital Financing Costs

Chapter:
(p.127) 11 Working Capital Financing Costs
Source:
Working Capital Management
Author(s):

Lorenzo A. Preve (Contributor Webpage)

Virginia Sarria-Allende (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199737413.003.0011

In this chapter, we discuss the financing costs associated with working capital. Given that working capital is financed with both long‐term debt and equity, we identify the corresponding risk associated with each type of contract and explain that the compensation to investors should be different according to the type and size of the underlying risk. After determining the costs associated with these sources of funds, we combine these costs using the concept of weighted average cost of capital.

Keywords:   corporate finance, working capital management, cost of capital, corporate strategy, working capital

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