Cost of Capital

A Cost of Capital is an cost of investment capital.

• Context:
  • It can be correlated by Interest Rates (it can be reduced by low interest rates).
  • …
• Counter-Example(s):
  • Cost of Labor.
• See: Cost of Equity, Cost of Debt, Weighted Average Cost of Capital, Marginal Cost of Capital.

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References

2015

• (Wikipedia, 2015) ⇒ http://en.wikipedia.org/wiki/Cost_of_capital Retrieved:2015-3-21.
  • In accounting, 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 required rate of return on a portfolio company's existing securities". It is used to evaluate new projects of a company. 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.

2014

• http://www.investopedia.com/terms/c/costofcapital.asp
  • QUOTE: The cost of funds used for financing a business. Cost of capital depends on the mode of financing used – it refers to the cost of equity if the business is financed solely through equity, or to the cost of debt if it is financed solely through debt. Many companies use a combination of debt and equity to finance their businesses, and for such companies, their overall cost of capital is derived from a weighted average of all capital sources, widely known as the weighted average cost of capital (WACC). Since the cost of capital represents a hurdle rate that a company must overcome before it can generate value, it is extensively used in the capital budgeting process to determine whether the company should proceed with a project.

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