The cost of capital is used as the hurdle rate in investment decisions: a project creates value if it returns more than the cost of capital. Country risk, industry risk and the company's level of debt affect the cost of capital.
Related terms
Weighted average cost of capital (WACC)The average of the costs of a company's equity and debt financing, weighted by their share of the capital structure.Discounted cash flow (DCF)A valuation method based on discounting the free cash flows an asset or company will generate in the future to the present using an appropriate discount rate.Completion accountsFinancial statements prepared as at the closing date of an acquisition, through which the final price is set by net debt and working capital adjustments.Earn-outA mechanism under which part of the purchase price is paid depending on the target company reaching certain performance targets after closing.EBITDAEarnings before interest, tax, depreciation and amortisation; used as an indicator of the cash-like profitability generated by a company's core operations.Fairness opinionAn independent expert opinion on whether the consideration proposed in a merger, acquisition or share transfer is fair from a financial point of view.
Last updated: October 22, 2026 · This definition is for general information only.