Cost of Capital
Cost of Capital is the rate of return that the must firm earn to its project investment to maintain its market value and attract funds.
The opportunity cost of an investment; that is, the rate of return that a company would otherwise be able to earn at the same risk level as the investment that has been selected. For example, when an investor purchases stock in a company, he/she expects to see a return on that investment. Since the individual expects to get back more than his/her initial investment, the cost of capital is equal to this return that the investor receives, or the money that the company misses out on by selling its stock.
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.
The cost of capital is a term used in the field of financial investment to refer to the cost of a company's funds (both debt and equity), or, from an investor's point of view "the shareholder's required return on a portfolio of all the company's existing securities". It is used to evaluate new projects of a company as it is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet.
Cost of debt capital is the required rate of return on investment of the lenders of a company. A company may raise debt in a variety of ways. It may borrow funds from financial institutions or public deposits or bond may be issued at par or at a discount or at a premium. The contractual rate of interest from the basis for calculating the cost of any form of debt.
So we say that, cost of capital is the required rate of return on the various types of financing. The overall cost of capital is a weighted average of the individual required rates of return ( cost ).
Cost of Capital is the rate of return that the must firm earn to its project investment to maintain its market value and attract funds.
The opportunity cost of an investment; that is, the rate of return that a company would otherwise be able to earn at the same risk level as the investment that has been selected. For example, when an investor purchases stock in a company, he/she expects to see a return on that investment. Since the individual expects to get back more than his/her initial investment, the cost of capital is equal to this return that the investor receives, or the money that the company misses out on by selling its stock.
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.
The cost of capital is a term used in the field of financial investment to refer to the cost of a company's funds (both debt and equity), or, from an investor's point of view "the shareholder's required return on a portfolio of all the company's existing securities". It is used to evaluate new projects of a company as it is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet.
Cost of debt capital is the required rate of return on investment of the lenders of a company. A company may raise debt in a variety of ways. It may borrow funds from financial institutions or public deposits or bond may be issued at par or at a discount or at a premium. The contractual rate of interest from the basis for calculating the cost of any form of debt.
So we say that, cost of capital is the required rate of return on the various types of financing. The overall cost of capital is a weighted average of the individual required rates of return ( cost ).