Cost of Capital Concept
Cost of capital is the average cost of debt and equity. We
need capital (equity and debt) for investment and therefore we must know what
would be the cost of funds which is basically is cost of our investment. In
simple term cost of capital provides us the information cost of our investment
decision.
Therefore cost of Capital is consisting of two primary
elements.
1. Cost of Equity
–Return desired by equity Holder
2. Cost of Debt-
Required rate of return by Debt Holder
