Cost of capital is a financial term referring to the interest and fees to have investment money. The most common type of capital is borrowed funds via bonds or notes whereby interest and the initial ‘closing costs’ or ‘debt costs’ fees are included in the cost of capital. In addition, other forms of costs include preferred dividends for the sale of preferred stock, dividends for regular stock. There are many other costs but those usually exist in more advanced forms of raising capital arenas.
The textbook answer defines cost drivers as those factors that determine the overall cost of operations. As an example, in manufacturing the cost drivers may be processing time or number of steps to produce the product. With service, the cost drivers could be the actual ratio of billable to non-billable time.
The Internal Revenue Service defines a business expense as ‘ordinary’ and ‘necessary’. Ordinary expenses are those costs typically incurred in your industry. A restaurant would not ordinarily purchase vaccines. And a medical practice would not purchase 50 heads of lettuce.
