Cost of capital is the expense of funds used for financing a profitable business. Cost of capital depends on the mode connected with financing used – the item refers to the expense of equity if the organization is financed only through equity, or to the expense of debt if it truly is financed solely as a result of debt. Many companies use combining debt and money to finance their particular businesses, and regarding such companies, their overall expense of capital is derived from a weighted average of most capital sources, known as the weighted common cost of capital (WACC).
Cost of capital
