Composite Cost Of Capital

DEFINITION of 'Composite Cost Of Capital'

A company's cost to borrow money given the proportional amounts of each type of debt and equity a company has taken on. A company's debt and equity, or its capital structure, typically includes common stock, preferred stock and bonds. A high composite cost of capital, indicates that a company has high borrowing costs; a low composite cost of capital signifies low borrowing costs.


Also referred to as "weighted average cost of capital" or WACC.

BREAKING DOWN 'Composite Cost Of Capital'

A company's management uses the company's composite cost of capital in internal decision making. For example, it might use it as the discount rate in a discounted cash flow analysis to help decide whether the company could profitably finance a new project. Investors may use a company's composite cost of capital as one of several factors in deciding whether to buy the company's stock.

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RELATED FAQS
  1. How do you calculate the ratio between debt and equity in the cost of capital

    Discover how to calculate the ratio between debt and equity when making cost of capital estimations using the weighted average ... Read Answer >>
  2. What is the difference between cost of equity and cost of capital?

    Read about some of the differences between a company's cost of equity and its cost of capital, two measures of its required ... Read Answer >>
  3. Which is more important when estimating cost of capital - debt or equity?

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  4. What is the difference between the cost of capital and the discount rate?

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  5. What is the difference between the cost of capital and required return?

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