Cost of Capital
Definition
The minimum return a company must earn on its investments to satisfy its investors — the blended cost of debt and equity financing.
Explanation
Cost of capital (WACC — weighted average cost of capital) is the discount rate used in DCF valuations and capital budgeting decisions. It represents the opportunity cost of investing in a project: if the expected return exceeds WACC, the project creates value; if below, it destroys value. A company's WACC depends on its capital structure (debt/equity mix), cost of debt (interest rate adjusted for tax deduction), and cost of equity (estimated via CAPM or comparable analysis).
Formula
WACC = (E/V × Re) + (D/V × Rd × (1-T))
How Stoquity Uses This
Stoquity incorporates cost of capital analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.