Cost of Capital
The minimum return a company must earn to satisfy its lenders and shareholders (its WACC). A company creates value only when its returns on invested capital clear this hurdle; below it, growth destroys value.
Why it matters
WACC is the discount rate used in DCF valuation. If a company's ROIC exceeds WACC, every dollar reinvested creates value. If ROIC is below WACC, the company is destroying shareholder value even if it reports positive earnings.
How to read it
Typical WACC ranges from 8\u201312% for most public companies. Lower for stable, investment-grade firms (utilities ~5\u20137%); higher for risky, small-cap companies (12\u201315%+). Rising interest rates push WACC higher, making fewer projects economically viable.
Source
Modigliani & Miller (1958). "The Cost of Capital, Corporation Finance and the Theory of Investment."
Lessons that use this term
Related terms
Active Management · Active Share · AI Revenue · Anchoring Bias · Creation Unit · Days to Cover
Open this term in the app → — no account needed; browse the full glossary while you research.