2 min read
Definition
Cost of capital is what a business pays to use money, whatever its source. For debt, it is the interest and fees. For equity, it is the return investors expect for their share. For your own cash, it is the opportunity cost — what that money could otherwise earn or protect against. Every funding decision is really a comparison of these costs.
Understanding it explains why paying cash is not automatically cheapest (see buy outright or finance) and why debt often beats equity for a profitable business (see debt vs equity for scaling).
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