What is Cost of Capital?
The cost of capital is a crucial concept in finance that refers to the cost a company incurs to finance its operations through debt, equity, or a combination of both. It represents the minimum return that a company must earn on its investments to satisfy its investors and creditors. Understanding the cost of capital is essential for making informed financial decisions, as it helps determine the viability of projects, the valuation of a company, and the pricing of securities.
In this article, we will delve into the various components of the cost of capital, its significance in financial management, and the methods used to calculate it. By the end, you will have a comprehensive understanding of this critical financial metric and its implications for businesses across different industries.
