Incremental Cost Of Capital

AAA

DEFINITION of 'Incremental Cost Of Capital'

A term used in capital budgeting, the incremental cost of capital refers to the average cost a company incurs to issue one additional unit of debt or equity. The incremental cost of capital varies according to how many more or fewer units of debt or equity a company wishes to issue. The calculation frequently used to determine the cost of capital is the weighted average cost of capital formula (WACC), which weights the cost of debt and equity, according to the company's capital structure.

INVESTOPEDIA EXPLAINS 'Incremental Cost Of Capital'

The term "incremental cost of capital" refers to costs associated with acquiring more debt or equity for a future project. The incremental cost of capital is usually equal to the hurdle rate, which is the required rate of return for the acceptance or rejecting of a project.

RELATED TERMS
  1. Cost Of Capital

    The required return necessary to make a capital budgeting project, ...
  2. Replacement Chain Method

    A capital budgeting decision model that is used to compare two ...
  3. Composite Cost Of Capital

    A company's cost to borrow money given the proportional amounts ...
  4. Cost Of Equity

    In financial theory, the return that stockholders require for ...
  5. Capital Budgeting

    The process in which a business determines whether projects such ...
  6. Weighted Average Cost Of Capital ...

    A calculation of a firm's cost of capital in which each category ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Investing Basics

    How And Why Do Companies Pay Dividends?

    If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments ...
  2. Investing Basics

    Introduction To Multi-Discipline Accounts

    You get multiple managers, affordable diversification, customization and consolidated reporting all under one roof.
  3. Markets

    Intangible Assets Provide Real Value To Stocks

    Intangible assets don't appear on balance sheets, but they're crucial to judging a company's value.
  4. Fundamental Analysis

    Taking Stock Of Discounted Cash Flow

    Learn how and why investors are using cash flow-based analysis to make judgments about company performance.
  5. Investing

    Additional Paid-In Capital

    Additional paid-in capital is an account in the equity section of a balance sheet. It represents the additional amount paid for the company’s shares over the par value of the shares. Additional ...
  6. Fundamental Analysis

    Capital Budgeting

    Capital budgeting is a planning process used by companies to evaluate which large projects to invest in, and how to finance them. It is sometimes called “investment appraisal.”
  7. Investing

    Return On Capital Employed - ROCE

    Return on Capital Employed (ROCE) is a financial ratio that measures company's ability to earn a return on all of the capital it employs.
  8. Investing

    Capital Structure

    Capital structure is the combination of the debt and equity a company uses to finance its long-term operations and growth.
  9. Investing Basics

    Capitalization Rate

    Capitalization Rate is a financial term most commonly used in the real estate investment industry. It is often simply called the Cap Rate.
  10. Investing Basics

    Capital Budgeting

    Learn the process through which businesses determine whether projects are worth pursuing.

You May Also Like

Hot Definitions
  1. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  2. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  3. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  4. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  5. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  6. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
Trading Center