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Cost of Capital
The cost of a company�s funds (both debt and equity), used as a benchmark to evaluate the return on investment and guide strategic financial decisions.
Implications
The rate of return that a company must earn on its investment projects to maintain its market value and attract funding, often used in capital budgeting and financial analysis to evaluate the feasibility of investments.
Example
Example: A company calculates its cost of capital to determine the minimum acceptable return on a new project, ensuring it meets the required threshold to justify the investment.
Related Terms
Different from the cost of debt, which is the interest paid on borrowed funds, the cost of capital includes both debt and equity costs, reflecting the overall required return for investors.
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