Cost of Capital Tutorial

The goal of this tutorial is to give the reader a thorough understanding of one of the most important, and least understood, concepts in corporate finance - the cost of capital. While the cost of capital can be considered a fundamental building block of corporate finance, it is frequently ignored by many companies as they go about their day to day operations. However, by ignoring the cost of capital, companies run the risk of misallocating capital and therefore destroying rather than creating shareholder value. This tutorial will give the reader the tools necessary to determine what debt and equity capital costs so that a proper comparison can be made between a company’s cost of capital, and the return a company is actually earning on invested capital.