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.

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