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Cost of Capital (CoC)

12 bytes removed, 23:15, 12 January 2013
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Even subsidised loans with interest rates lower than 1% can lead to significant annual expenditures on cost of capital if there is a large loan and a long repayment period as shown by the example of Franceys, Naafs, Pezon and Fonseca, 2011;
:::<font size="2">''A governmental body borrows US$ 22 million from a development bank to improve the water and sanitation situation for around a million people. The loan was for a 50 year period. It was agreed that for the first 10 years, from 2013 to 2023, no repayment of principal would take place.</font>
:::The development bank charged a fee of 0.5% per year for money that had been allocated and reserved but not yet used (known as a commitment charge ) and 0.75% in interest for the money that the project was already spending. The repayment of the principal, starting in year 10, is 1% for 10 years and 3% over the final 30 years.
:::In this example the annual cost of capital is averaging approximately US$ 100,000 per year with total commitment and interest payments over the period of approximately US$ 4,900,000. In order to be able to repay both the cost of capital and the original loan, The government has to plan for the total annual cash flow payments shown in Figure 1.''
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