Question

 

What is cost of capital? Explain the importance of Weighted Average Cost of Capital (10) (WACC) in capital budgeting decisions. 

12 Feb 2026
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 of all these sources. The cost of capital is generally classified into cost of debt, cost of preference share capital, ______ _______ _______ __________ ________ _______ _________ __________ _________.
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