Cost of Capital

   

Definition: Cost of Capital is the amount, expressed as an annual percentage, that a firm must pay to obtain adequate funds (money) to finance its business and/or its operations.
The Cost of Capital is the weighted sum of the:
- Cost of Equity (regular shares)
- Cost of Preferred Stock (special shares)
- Cost of Debt (borrowings)
There are many different sources (types) of capital: traditional debt or equity financing or owner financing, grants, gains on investment capital, retained earnings, accrual financing contracts and forward payment agreements on capital.
See also WACC.


   

   

More on cost of capital.
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