ABSTRACT
Cost of capital serves as a standard for establishing acceptable ROI rates, as well as measuring whether actual ROI rates meet acceptable levels as in the case of operating divisions. It represents the interest or discount rate on the market value of cash flows used in measuring investments of a company. In addition, it represents the minimum rate at which investors expect to earn on their investment in the company. This required rate induces investors to provide all forms of long-term capital to the company.
