• Retained cost of capital is an analysis that uses either a hypothetical or actual no-debt scenario to measure the cost to a company of a particular capital project.

  • Non-leveraged cost of capital compares the cost of capital of a project using zero debt as an alternative to the cost of a leveraged capital investment.
  • Non-leveraged cost of capital is generally higher than leveraged cost of capital because the cost of debt is lower than the cost of equity.
  • To calculate the unlevered cost of capital, several factors are needed, which include the unlevered beta, the market risk premium, and the risk-free rate of return.
  • If a company cannot deliver expected returns without leverage, investors may choose not to invest.
  • In general, if an investor considers a stock to be high risk, it is usually due to a higher non-leveraged cost of capital, all other things being equal.