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Capital, cost of


1. The cost, measured as a rate of interest, of the capital employoo by a business weighted according to the proportions of different sources. of capita! used. 2. The marginal cost of capital, i.e. the cost of raising new capital. 3. In. investment appaisal, the cost of capita! is used in discounted cash flow calculations, either directly in the discounting procedure, or as a standard of comparison with the internal rate of return. That is to say, it is the minimum rate of return which a firm would consider on a new investment project, and would be ideally equal to the rate of return which the firm's shareholders could obtain on comparable investments outside the company.

Reference: The Penguin Dictionary of Economics, 3rd edt.