UK: MATTERS OF RISK AND RETURN.

UK: MATTERS OF RISK AND RETURN. - Which figures should go into calculating the cost of capita?

Which figures should go into calculating the cost of capita?

Before deciding which way to go in order to get where you want, it's useful to know where you are. Similarly, to make a reasonable assessment of any capital investment proposal, you should first know your cost of capital. This will give an idea, not only of how the investment will be paid back, but also of the opportunity cost involved. Calculating the cost of capital should in theory be fairly straightforward, based on a weighted average of debt and equity cost (depending on how the venture is to be funded) and building in risk factors as appropriate. In the real world, deciding which figures should go into the calculation is by no means so clear-cut.

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