Cost of Capital

The cost of capital is the baseline return on a project required to justify its costs to those funding it. The cost of capital is calculated using the cost of debt (by taking an average of all credit lines and funding) and the cost of equity (using models such as the Capital Asset Pricing Model) and weighting the two by how much of each a company uses to fund its operations. The result is referred to as the weighted average cost of capital, or WACC.