capital cost

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capital cost

The company carefully considered the capital cost of the new factory.

Definition

Noun: - The opportunity cost of the funds used for an investment: This refers to the potential return that is forgone because capital is invested in one project instead of another, equally risky, alternative. - The required rate of return for an investment: It is the minimum return a business expects to earn from an investment, considering the risk and the returns available from other investments with similar risk profiles.

Usage
  • Capital cost is a fundamental concept in corporate finance and investment analysis. It is used to evaluate the viability of projects and to make decisions about allocating financial resources.
  • It is often synonymous with terms like "cost of capital" or "hurdle rate" in financial contexts.
Examples
Advanced Usage
  • Weighted Average Cost of Capital (WACC): This is a common calculation that represents a firm's average capital cost from all sources, including debt and equity. It is used as a discount rate for future cash flows.
    • The finance team calculated the WACC to determine the firm's overall capital cost for the new fiscal year.
Variants and Related Words
  • Cost of Capital (n): A direct synonym for capital cost, referring to the cost of funds used for financing a business.
  • Hurdle Rate (n): The minimum rate of return required on an investment, often set equal to the firm's capital cost.
  • Opportunity Cost (n): A broader economic concept of which capital cost is a specific application, representing the value of the next best alternative forgone.
Synonyms
  • Required rate of return
  • Discount rate (in the context of investment appraisal)
  • Minimum acceptable return
Related Phrases
  • To exceed the capital cost: To generate a return higher than the required minimum.
    • For an investment to create value, it must exceed the capital cost.
  • To incorporate the capital cost: To include this cost in financial models or calculations.
    • The net present value calculation must properly incorporate the capital cost to be accurate.
capital cost

The company carefully considered the capital cost of the new factory.

Noun
  1. the opportunity cost of the funds employed as the result of an investment decision; the rate of return that a business could earn if it chose another investment with equivalent risk

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