What is the Cost of Capital?

The cost of funds is the fee paid to obtain the right to use the funds. The profit after the project investment must be able to compensate the cost of funds before it can be profitable. Therefore, the minimum rate of return should not be less than the cost of capital, otherwise it will be unprofitable. Opportunity cost of investment refers to the best return that investors can get from using limited funds for investment opportunities other than the proposed project. ^[1]

capital cost

The cost of funds includes funding costs and

1. The cost of capital is under the conditions of the commodity economy

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Cost of capital ratio = annual

1. The cost of capital is satisfactory

The role of the cost of funds in corporate funding decisions is:

1. The cost of capital is the impact

The so-called capital cost is the cost paid by the enterprise to raise and use funds. Every capital has its own specific cost of capital. For example, the use of bonds to raise funds must pay the corresponding interest, which can be fixed interest rates or variable interest rates. Stock financing must pay related dividends, and in most cases, investors' capital gains are expected to change as the market value of the stock changes.

The cost of capital is an important issue in modern enterprises that relates to corporate funding decisions and investment decisions. The role of capital cost in corporate fund-raising decisions is as follows: capital cost is an important factor affecting the total amount of capital raised by an enterprise; capital cost is the main basis for an enterprise to choose a source of funding; capital cost is a reference standard for an enterprise to choose a financing method; capital cost is the most determinant The main reference for optimal capital structure.

The role of capital cost in corporate investment decisions is as follows: the cost of capital can be used as the discount rate for project investment; the cost of capital is the benchmark return on investment projects. At the same time, the cost of funds is the basis for assessing the operating results of an enterprise. Any company whose actual return on investment is lower than this level should be considered to be unfavorable in operation. This is also a signal to the operator that the enterprise must improve its management. Improve economic efficiency.