GENERAL KNOWLEDGE

Detailed explanation-1: -The concept of the cost of capital is key information used to determine a project’s hurdle rate. A company embarking on a major project must know how much money the project will have to generate in order to offset the cost of undertaking it and then continue to generate profits for the company.

Detailed explanation-2: -Cost of Capital is the expected returns from a project, based on which the management of an organisation decides to invest in a project. It evaluates the risk of undertaking a particular project, and the expected rate of return on the investment, to determine the feasibility of spending their time and money on it.

Detailed explanation-3: -The cost of capital is very important concept in the financial decision making. Cost of capital is the measurement of the sacrifice made by investors in order to invest with a view to get a fair return in future on his investments as a reward for the postponement of his present needs.

Detailed explanation-4: -The cost of capital is based on the perceived risk of the investment. Risky companies (or investments) warrant a higher discount rate and, therefore, a lower value (and vice versa). A business can be financed with 100% equity or a blend of equity and debt financing. In general, debt costs less than equity.