Cost of Capital: Foundations of Financial Decisions

Understand the importance of cost of capital in financial decision-making.

Learn to calculate individual and weighted costs of capital.

Strengthen your ability to evaluate projects using WACC as a benchmark.

Gain insights into how financing choices affect risk, return, and firm value.

Build expertise in strategic resource allocation and capital structure decisions

Meaning and significance of cost of capital

Components of cost of capital:

• Cost of equity

• Cost of debt

• Cost of preference shares

Weighted Average Cost of Capital (WACC)

Role of cost of capital in:

• Investment appraisal

• Financing decisions

• Dividend policy

Factors influencing cost of capital:

• Risk profile of the firm

• Market conditions

• Capital structure

Strategic implications for value creation