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The cost of capital is the minimum expected return on equity capital suppliers, investors and creditors. The cost of capital is used to make investment decisions. The expected return of any investment opportunity should not be less than the cost of the capital required to finance it.
weighted average cost (WACC) it reffer to oppertunity cost of making to specific investment
Cost of capital is the required return necessary to make a capital budgeting project, such as building a new factory, worthwhile. Cost of capital includes the cost of debt and the cost of equity. Another way to describe cost of capital is 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, the 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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In a very brief and precise wording;
Cost of Capital = (Cost of debts + Cost of Equity)
Or, It is the the total cost of funds that are financing the business.
Cost Capital is the amount of funds that your going to Invest or that your going to incurr in your business. We call it Capital Stock total amount of funds for investment purposes....
Cost of capital refers to the opportunity cost of making a specific investment. It is the rate of return that could have been earned by putting the same money into a different investment with equal risk. Thus, the cost of capital is the rate of return required to persuade the investor to make a given investment.
Cost of capital is the required return of the investors (Owners, Lenders etc.) necessary to make investment decisions (i.e (a capital budgeting project) such as building a new factory, worthwhile.
Cost of capital includes the cost of debt and the cost of equity. Another way to describe cost of capital is 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, the 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.
