Cost Of Capital

Dictionary Says

Definition of 'Cost Of Capital'

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.
Investopedia Says

Investopedia explains 'Cost Of Capital'

The cost of capital determines how a company can raise money (through a stock issue, borrowing, or a mix of the two). This is the rate of return that a firm would receive if it invested in a different vehicle with similar risk.

Related Definitions

  • Capital Budgeting

    The process in which a business determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing. Oftentimes, a prospective project's ...
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  • Cost Of Equity

    In financial theory, the return that stockholders require for a company. The traditional formula for cost of equity (COE) is the dividend capitalization model: A firm's cost of equity ...
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  • Risk

    The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Different versions of risk ...
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    • Weighted Average Cost Of Capital - WACC

      A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other ...
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    • Opportunity Cost

      1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.2. The ...
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    • Cost Of Debt

      The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; however, because interest expense is deductible, the after-tax ...
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    • Payback Period

      The length of time required to recover the cost of an investment.Calculated as:
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    • Unlevered Cost Of Capital

      An evaluation that uses either a hypothetical or actual debt-free scenario when measuring the cost to a firm to implement a particular capital project. The unlevered cost of capital ...
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    • Weighted Average Cost of Equity - WACE

      A way to calculate the cost of a company's equity that gives different weight to different aspects of the equities. Instead of lumping retained earnings, common stock, and preferred ...
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    • Return On New Invested Capital - RONIC

      A calculation used, either by a firm or investors, to determine the amount of return that a firm could earn on additional contributed capital. The calculation measures the return ...
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