Importance of Calculation of cost of capital

Cost of capital is an important consideration in capital structure decisions. It is obvious that a business should be at least capable of earning enough revenue to meet its cost of capital and finance its growth . Hence , along with a risk as a factor , the finance manager has to consider the cost aspect carefully while determining the capital structure. I have tried to summarize the importance of cost of capital

1. Acceptable criteria in capital budgeting

2. Useful in capital mix

3. As a basis for evaluating financial performance

4. It is useful in making decision

See also

Cost of capital - Definition