Question
What is cost of capital? Explain the importance of Weighted Average Cost of Capital (10) (WACC) in capital budgeting decisions.
Answer :
Word Count : 593
Cost of capital refers to the minimum rate of return that a company must earn on its investments in order to satisfy its investors, both debt holders and equity shareholders. It represents the opportunity cost of using funds in a particular project instead of investing them in alternative opportunities of similar risk. In simple terms, it is the price paid by a firm for raising capital from various sources such as equity shares, preference shares, debentures, and retained earnings. Each source of finance has its own specific cost, and the overall cost of capital reflects the combined cost ______ ___ ______ ______ _______ ____ ________ ___ ____.
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Cost of capital refers to the minimum rate of return that a company must earn on its investments in order to satisfy its investors, both debt holders and equity shareholders. It represents the opportunity cost of using funds in a particular project instead of investing them in alternative opportunities of similar risk. In simple terms, it is the price paid by a firm for raising capital from various sources such as equity shares, preference shares, debentures, and retained earnings. Each source of finance has its own specific cost, and the overall cost of capital reflects the combined cost ______ ___ ______ ______ _______ ____ ________ ___ ____.
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