Effective Net Worth is the sum of a firm's net worth and its subordinated debt, providing a more comprehensive view of financial health from the perspective of senior creditors.
Marginal Cost of Capital represents the cost of financing for the next dollar of capital raised. Different sources of capital, such as subordinated debt, can have varying costs. This metric is crucial for determining the hurdle rate in discounted cash flow and present value analysis.
Subordinated debt is a type of unsecured debt that can only be claimed by a creditor after the claims of secured creditors have been met, particularly in the event of a liquidation.
