Counting the costs of capital (TT Feb03 p18-20)

The cost of capital for a project (a company, division, or a single investment) is the cost of its debt and equity finance. Unlike conventional straight debt, calculating the cost of equity is relatively difficult. In this article, we review an established equity pricing model, the capital asset pricing model (CAPM), followed by a discussion of calculating the cost of capital including debt – that is, the weighted average cost of capital (WACC)¹.