Relevance of 'Cost of Capital' in Investment Decision Making

Abstract

'Cost of Capital' is relevant while structuring the capital requirements of a company, for deciding the right mix of means of financing and for assessing the success or otherwise of any project. It forms the basis of return any investment has to earn so as to maximize shareholder wealth. As the goal of any firm is not only to remain profitable but as well to constantly increase their shareholder wealth, any investment shall not only return at least its cost of capital but aim at getting greater than its cost of capital.