Cost of Capital
Basic Concepts & Definitions
To Finance a company: Debt and / or Equity.
Capital Components: various types of debt +
preferred stock + common equity.
Each component has a cost.
Each component has a weight in the financial
Many costs are not specifically associated with a product. These costs must be allocated to fiscal periods
in a reasonable fashion. For example, each month can be charged with one-twelfth of the general
business insurance policy even though the policy was