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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Cost of capital
Why cost of capital is used as discounting rate to calculate npv?
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.
