Introduction. Meaning of the Cost of Capital. Definitions. Impact on Company and Investment Decisions. Calculation of the Cost of Capital. Meaning of Weighted Average Cost of Capital. Calculation of WACC and Case Studies. Cost of Capital application in the World and Lithuania. Conclusions. Information Source.

The Cost of Capital is one of the most disputed topics in finance. It is necessary for firms to properly estimate their cost of capital in order to make proper decisions regarding acceptance or rejection of capital projects.

The aim of my course work is to analyze the Cost of Capital in different aspects. That is why I have decided to examine the following steps. Firs of all, I explained the variety of possible definitions of the main term "the Cost of Capital" and saw that all of them mean pretty much the same. As I realize that the Cost of Capital should have some meaning in company’s decision making, I presented the impact of my matter to investment appraisal and proved that with the case of particular hotel and the impact of its cost of capital. As the Cost of Capital is a certain rate, it definitely must have some form of estimating the value, so I provided the basic calculations of my matter. And as this matter is closely related with the Weighted Average Cost of Capital, I firstly defined what does the WACC mean and what it is used for. Further more you will find the main formulas and couple certain ways to calculate the WACC and those calculations were sustained by examples and couple case studies in real corporations. At the end of my course work I have included some articles to show how the Cost of Capital work in the World and Lithuania.

Cost of Capital is the required rate of return that a firm must achieve in order to cover the cost of generating funds in the marketplace. Based on their evaluations of the riskiness of each firm, investors will supply new funds to a firm only if it pays them the required rate of return to compensate them for taking the risk of investing in the firm’s bonds and stocks. If, indeed, the cost of capital is the required rate of return that the firm must pay to generate funds, it becomes a guideline for measuring the profitabilities of different investments. When there are differences in the degree of risk between the firm and its divisions, a risk-adjusted discount-rate approach should be used to determine their profitability.

What impacts the cost of capital? ...