Glossary

Cost of capital is the rate of return a company needs to achieve to satisfy its investors and maintain its value. 💼

It represents the opportunity cost of investing in a specific project or business, as opposed to alternative investment options. In simpler terms, it's the cost a company incurs to obtain funds for investment.

For example, if a company raises funds through issuing stocks or bonds, it has to pay dividends or interest to investors, which is considered the cost of capital. 💰

Fun fact: The cost of capital can be viewed as the "hurdle rate" 🏃‍♂️ which is the minimum return a company must achieve on its investments to avoid losing value. If a company's return on investment is lower than its cost of capital, it could indicate that the company is destroying shareholder value.