Investopedia

Continue to Site »

Cost Company Arrangement

Filed Under » , ,
Dictionary Says

Definition of 'Cost Company Arrangement'

An agreement between companies that are working together, whereby certain participants in a project receive the output at no mark-up in cost, but have to pay all the operating, finances and other expenses associated with the project. The cost company is the company formed in the arrangement. The companies involved receive their exact proportion of product and pay their proportion of costs, essentially operating at a non-profit basis because there was no profit margin added to the product.

This agreement is sometimes encountered as a condition in project finance and is also known as cost company agreement, or cost company approach.

Investopedia Says

Investopedia explains 'Cost Company Arrangement'

The advantage of the cost company arrangement is that output is transfered at cost, without any mark-up. If there is no profit, then there are tax advantages. Also the participants don't need to worry about the antitrust implications of dividing up the profits. Additionally, the companies involved benefit from clearly defined control over the project, compared to a true joint venture.

However, a cost company arrangement can be hard to set up, especially in other countries because the host country will want to see some sort of profit realized so they can charge taxes.

Articles Of Interest

  1.

    Clean Or Green Technology Investing

    Innovations in energy and consumption grow as companies adopt them to reduce costs.

  2. How The Power Of The Masses Drives The Market

    Market psychology is an undeniably powerful force. Find out what you can do about it.

  3. Internal Rate Of Return: An Inside Look

    Use this method to choose which project or investment is right for you.

  4. New Year Planning For Business Owners

    Make a resolution to start your business off on the right foot in the new year.

  5. What is a monopoly?

    Monopoly is a fun family game, but in real life, a monopoly can be dangerous to a country's economy. A monopoly occurs when an industry or sector has only one producer of goods or retailer for ...

  6. Countries With The Largest Shadow Markets

    These nations have the largest informal economies relative to their respective GDPs.

  7. Some Thoughts On The Shadow Market

    The "shadow market" is a broad-based moniker with both positive and negative connotations.

  8. Investing In Oil And Gas UITs

    Unit investment trusts provide direct exposure to the energy sector, fueling better returns.

  9. Financial Companies Need A New Model

    It may be time for the U.S. to adopt a model for financial companies that better deters risky financial behavior.

  10. An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  2. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  3. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  4. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.

  5. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.

  6. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.
Trading Center