cost of capital investment & finance definition
The
minimum return that is required on a new investment. The required return is
what a company must earn on its capital investment in order to break even.
Another way of looking at cost of capital is as the opportunity cost associated
with a company’s capital investment. An opportunity cost is not being able to
make an investment because the limited funds available have already been
committed.
See cost of capital in Wall Street Words
The overall percentage cost of the funds used to finance a firm's assets. Cost of capital is a composite cost of the individual sources of funds including common stock, debt, preferred stock, and retained earnings. The overall cost of capital depends on the cost of each source and the proportion that source represents of all capital used by the firm. The goal of an individual or business is to limit investment to assets that provide a return that is higher than the cost of the capital that was used to finance those assets.
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