Cost of Capital

Formal

The percentage rate, or minimum rate of return, that is required by a company, in deciding whether to spend money investing in a project. Derived from a calculation of a company’s own ‘cost of capital’ based upon percentage returns demanded by providers of debt and equity to that company itself.

Real-world Example

A company's cost of capital is 8%. A proposed project is only forecast to return 6%, so it doesn't clear the hurdle and the board turns it down.