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What is the cost of capital?

  • Management Dictionary
  • Corporate and Market Finance
18 views

The cost of capital is the average cost of the financial resources used by a company to finance its assets.

It is calculated as follows:
WACC = (CP x R + D x R x (1-t))
CP: Equity

D: Debt

CRP: Cost of Equity

RD: Cost of Debt

t: Tax Rate

It represents the minimum rate of return a company must generate to be able to remunerate its capital providers.

Keywords
  • capital structure, cost of capital, debt, equity, Finance, financing, WACC

Author(s)

CHIKH Sabrina
Docteure, Professeure associée
SKEMA Business School

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