The cost of capital is the cost of a company's funds (both debt and equity), or, from an investor's point of view "the expected return on a portfolio of all the company's existing securities".[1] It is used to evaluate new projects of a company as it is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet.
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The cost of capital is the cost of a company's funds (both debt and equity), or, from an investor's point of view "the expected return on a portfolio of all the company's existing securities".[1] It is used to evaluate new projects of a company as it is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet.

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The overall percentage cost of the funds used to finance a firm's assets. Cost of capital is a composite cost of the individual sources of funds, including common stock, debt, preferred stock, and retained earnings. The overall cost of capital depends on the cost of each source and the proportion that source represents of all capital used by the firm. The goal of an individual or business is to limit investment to assets that provide a return that is higher than the cost of the capital that was used to finance those assets. Also called average cost of capital.A relatively high cost of capital burdens U.S. industry and banks alike. The effects of high capital costs on capital formation in the United States are hard to demonstrate, but are believed to be important, especially in research-intensive high technology industries. The inflow of foreign direct investment into the United States in the late 1970s and the 1980s fits with a cost-of-capital interpretation. Cost-of-capital differences assert themselves with particular force in competition in wholesale banking. How foreign banks will respond to the effect Of recession on the cash flows of U. S. corporations is important, because a high cost of capital has shrunk U.S. banks' market share.

The Real Cost of Capital
A business field guide to better financial decisions
"This book is required reading for anyone involved in the practical issues of cost of capital decisions. It is written in a way that engages the novice, and yet challenges the professional to rethink the real issues."
Brendan Scholey, Bloomberg
"Capital is the lifeblood of any business and taking into account its cost is critical for sound decision-taking. This book provides a very accessible and comprehensive guide to the topic and should be of great value to all those involved in strategic and financial issues within business."
Dr Andrew Sentance, Chief Economist, British Airways
"The authors have succeeded in translating the technical jargon often surrounding cost of capital, creating a highly useful guide for corporate executives."
Roger J. Grabowski, Managing Director, Standard & Poor's Corporate Value Consulting
"An excellent book that achieves the right balance between theory and practice, and provides comprehensive and practical guidance regarding the main problems faced by valuation practitioners attempting to use discounted cash flow techniques."
Peter Elwin, Head of Accounting and Valuation Research, Cazenove"International valuation has always been confusing. There are many approaches and few guides. Ogier, Rugman and Spicer fill an important void. This book will be required reading for those doing international deals."

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The cost of capital is the fundamental financial tool for business decision-making. It drives measures of value creation and destruction, and forms the basis of financial analysis using cash flow and other frameworks

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The overall percentage cost of the funds used to finance a firm's assets. Cost of capital is a composite cost of the individual sources of funds, including common stock, debt, preferred stock, and retained earnings. The overall cost of capital depends on the cost of each source and the proportion that source represents of all capital used by the firm. The goal of an individual or business is to limit investment to assets that provide a return that is higher than the cost of the capital that was used to finance those assets. Also called average cost of capital.

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cost of capital

rate of return that is necessary to maintain market value (or stock price) of a firm, also called a hurdle rate, cutoff rate,or minimum required rate of return.The firm's cost of capital is calculated as a weighted average of the costs of debt and equity funds. Equity funds include both capital stock (common stock and preferred stock) and retained earnings. These costs are expressed as annual percentage rates. For example, assume the following capital structure and the cost of each source of financing for the XYZ Company:

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The cost of capital is the fundamental financial tool for decision-making. It is an area of finance in which the business realities that executives face bear little resemblance to the theories that they may have studied. Cost of capital is a composite cost of the individual sources of funds, including common stock, debt, preferred stock, and retained earnings.

The cost of capital is the cost of a company's funds (both debt and equity), or, from an investor's point of view "the expected return on a portfolio of all the company's existing securities". It is used to evaluate new projects of a company as it is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet.The overall percentage cost of the funds used to finance a firm's assets. Cost of capital is a composite cost of the individual sources of funds, including common stock, debt, preferred stock, and retained earnings. The overall cost of capital depends on the cost of each source and the proportion that source represents of all capital used by the firm. The goal of an individual or business is to limit investment to assets that provide a return that is higher than the cost of the capital that was used to finance those assets. Also called average cost of capital.
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