What is Cost of Capital?
A definition of Cost of Capital
“The cost of capital refers to the return rate that capital could be expected to earn in an alternative investment of equivalent risk. It is the cost of a company’s funds, both debt and equity.”

Business Glossary > What is Cost of Capital?
Examples of Cost of Capital in a Sentence:
Understanding the cost of capital is essential for strategic financial decision-making.
The company aims to reduce its cost of capital by refinancing its debt.
Calculating the cost of capital helps businesses in evaluating investment opportunities.
Why is Cost of Capital Important in Business?
Understanding the cost of capital is crucial because it serves as a benchmark for making financial decisions that maximize shareholder value. Firms aim to invest in projects that provide returns higher than the cost of capital. It affects pricing, investment, and financial strategies.
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Associated Terms
Here are some associated business terms and synonyms for “Cost of Capital”:
- Capital Cost
- Hurdle Rate
- Required Rate of Return
General Electric’s Cost of Capital
General Electric evaluates its projects based on the cost of capital to ensure they achieve more than what the capital would earn elsewhere. This disciplined approach has helped in maintaining its robust financial health.
Final Notes on Cost of Capital
When considering the cost of capital, it’s important to assess the associated risks, potential returns, and overall impact on company value. Calculating it accurately can guide businesses toward more profitable opportunities.
This has been a definition of Cost of Capital meaning.
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