Marginal Cost Of Funds

AAA

DEFINITION of 'Marginal Cost Of Funds'

The incremental cost of borrowing more money to fund additional asset purchases or investments. In its simplest calculation, the marginal cost of funds is simply the interest rate on the new loan balance. Marginal cost of funds is often confused with the average cost of funds, which would be calculated by computing a weighted-average of all the combined loans' interest rates.

INVESTOPEDIA EXPLAINS 'Marginal Cost Of Funds'

While many investors only think of the marginal cost of funds in terms of money borrowed from someone else, it's also important to think of it in terms of money borrowed from oneself or a company's own assets. In this instance, the marginal cost of funds is the opportunity cost of not investing existing funds elsewhere and receiving interest on it. For example, if a company uses $1,000,000 of its own cash to build a new factory, the marginal cost of funds would be the rate of interest it could have earned if it had invested that money instead of spending it on construction.

RELATED TERMS
  1. Marginal Analysis

    An examination of the additional benefits of an activity compared ...
  2. Unlevered Cost Of Capital

    An evaluation that uses either a hypothetical or actual debt-free ...
  3. Loan Modification

    A modification to an existing loan made by a lender in response ...
  4. Margin Loan Availability

    1. The dollar amount in an existing margin account that is currently ...
  5. Creditor

    An entity (person or institution) that extends credit by giving ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
Related Articles
  1. Accounting Rules Could Roil The Markets
    Bonds & Fixed Income

    Accounting Rules Could Roil The Markets

  2. Ancient Accounting Systems
    Insurance

    Ancient Accounting Systems

  3. A Look At Corporate Profit Margins
    Markets

    A Look At Corporate Profit Margins

  4. Reinvesting Capital Gains In Leveraged ...
    Mutual Funds & ETFs

    Reinvesting Capital Gains In Leveraged ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center