Cost of capital
Also called: required return, hurdle rate
The return that lenders and shareholders require for providing money to a business, given its risk.
A business creates value only when it earns more on its capital than its cost of capital. The weighted average cost of capital (WACC) combines the cost of debt and the cost of equity.
Learn more in these lessons
- Return on capital employed (ROCE)What does ROCE measure, and how is it different from ROE?
- Returns on incremental capitalWhen does a company's growth create value for shareholders?
- Weighted average cost of capital (WACC)What is WACC, and when should you use it to value a company?
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