what is cost of capital

Question

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.
It is used in capital budgeting to evaluate new projects or investments by comparing the expected return to the cost of capital.
Cost of capital is influenced by factors such as interest rates, market conditions, and the company's risk profile.
For example, if a company's cost of capital is 10%, any new project or investment should generate a return higher than 10% to be considered worthwhile.

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