In thinking about investments, especially capital investments by a firm, the cost of capital and especially the WACC is hugely important. What factors precisely determine the cost of capital for such investments, and what is the relationship between the required rate of return on an investment and is cost of capital? Give examples from your place of work.
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Cost Of Capital For Investments/ Required Rate Of Return:
The minimum annual percentage that an investment earns which has the capability of encouraging companies to put their money into certain security projects is referred to as the required rate of return. After putting their money in different security projects, investors within a company make comparisons on the returns obtained from investments to the other available options such as inflation rate during the calculation of the required rate of return (Dhaliwal, Lee & Neamtiu, 2011).
Capital investment by a firm is the amount of money that the business owners invests in a firm while holding expectations that they will receive an income. The invested amount is usually recovered later during the businesses operations period through the generated earnings by the organization. Capital investment by an organization is mainly used for the organization's capital expenditure rather than for the day-to-day expenses of the business or the working capital (Dhaliwal, Lee & Neamtiu, 2011).
The Weighted Average ...
The cost of capital for investments and the required rate of returns is examined.