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Finance
Cost of Capital
The average rate a company must pay to finance its assets through debt and equity.
Cost of capital is used to decide whether a new project is worth doing. If a project earns more than the cost of capital, it adds value. Most companies calculate it as a weighted average (WACC) of debt and equity costs.
Lower cost of capital gives a company a big advantage over competitors.
It's the interest rate the company pays to borrow money from both banks and its shareholders.
Real world: Apple has a very low cost of capital because investors trust it so much. This lets Apple borrow or raise money cheaply to build new factories or buy back shares.
💡 The lower your cost of capital, the easier it is to grow and make money.