The cost of capital represents the return that a company must earn to justify the cost of a capital project such as buying new equipment or constructing a new building.
The cost of capital includes the cost of equity and debt, weighted according to the company’s preferred or existing capital structure. This is known as the weighted average cost of capital (WACC).
A company’s investment decisions for new projects should always generate a return that exceeds the cost of capital used by the company to finance the project. Otherwise, the project will not bring income to investors.
– Analysts can estimate the demand for a product at any point on the demand curve. – Demand charts, used in conjunction with supply charts, provide a visual representation of the dynamics of supply and demand in the market.