Cost of Capital

The cost of capital is a specific kind of opportunity cost. It is estimated in order to understand the amount of return on investment that a company ought to make in order to pay investors the revenues they will expect for their capital. In other words, the cost of capital tells us what return an investor will expect in a particular economic situation for a particular investment; if a company cannot return the cost of capital to its investors, they will move their invested capital elsewhere. The cost of capital includes the costs of raising capital from all sources, including debt and the issuance of stock