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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  1. Do dividends affect working capital?

    Regardless of whether cash dividends are paid or accrued, a company's working capital is reduced. When cash dividends are ... Read Full Answer >>
  2. Do prepayments provide working capital?

    Prepayments, or prepaid expenses, are typically included in the current assets on a company's balance sheet, as they represent ... Read Full Answer >>
  3. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  4. What is a profit and loss (P&L) statement and why do companies publish them?

    A profit and loss (P&L) statement, or balance sheet, is essentially a snapshot of a company's financial activity for ... Read Full Answer >>
  5. How do dividends affect the balance sheet?

    Dividends paid in cash affect a company's balance sheet by decreasing the company's cash account on the asset side and decreasing ... Read Full Answer >>
  6. Do dividends go on the balance sheet?

    The only account recorded on the balance sheet, when dividends are declared and before they are paid out to a company's shareholders, ... Read Full Answer >>

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