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Cost of capital

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Cost of capital

  • This topic has 1 reply, 2 voices, and was last updated 11 years ago by John Moffat.
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  • July 19, 2013 at 3:12 pm #134146
    shahbaz Gohar
    Member
    • Topics: 6
    • Replies: 7
    • ☆

    Why cost of capital is used as discounting rate to calculate npv?

    July 20, 2013 at 8:38 am #134160
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    The cost of capital is effectively the rate of interest that the company is having to pay on the money it uses, or the return needed from investments in order to keep the investors (lenders and shareholders) ‘happy’.
    Discounting at the cost of capital determines whether or not the investment is giving a sufficient return.

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