Cost of Capital

Question

Cost of Capital

Accepted Answer

Cost of capital is the required return necessary to make a capital budgeting project, such as building a new factory, worthwhile.

Cost of capital is the weighted average cost of debt and equity used by a company to finance its operations.
It represents the minimum return that a company must earn on its investments to satisfy its shareholders or investors.
Calculating the cost of capital involves determining the cost of debt, cost of equity, and the company's capital structure.
For example, if a company's cost of capital is 10%, any new project it undertakes must generate a return of at least 10% to be considered worthwhile.

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