cost of capital - Phase 3 Discussion Board Kylie Paxton The...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Phase 3 Discussion Board Kylie Paxton The cost of capital can be viewed two ways. It can be viewed as the expected rate of return that the company must earn in order to cover the cost of generating funds in the marketplace, or it can be viewed as the rate in which the company is required to pay in order to borrow funds. Investors generally only want to invest into a company or any other investment that pays the required rate of return in order to compensate them for the risk of investing their funds and companies generally only want to invest into projects that will reap a benefit greater than their current cost of capital. The cost of capital is often used as a guideline to evaluate the profitability of varying investment opportunities (Simkins, n.d.). The primary focus of any company is to create value for its shareholders by earning a return on any of the company’s invested funds that are above the current cost of capital. The weighted average cost of capital (WACC) is a direct expression of this cost and is often used to determine if a specific project or other investment opportunity would be a worthwhile investment for the company (WACC-Weighted Average Cost of Capital, n.d.). Many think of the WACC as the weighted average return on an investment. The WACC is an important concept in terms of valuating stock and capital budgeting. In terms of investing into a project, a project that has an expected return that is greater
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/01/2010 for the course ACCT 624 taught by Professor Krisbrand during the Spring '10 term at Colorado Technical University.

Page1 / 4

cost of capital - Phase 3 Discussion Board Kylie Paxton The...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online