• Go to www.TeachMeFinance.com – and read topics:
• Cost of Capital, The Cost of Retained Earnings and The Weighted Average Cost of Capital
• View: Capital Budgeting You Tube video: Capital Budgeting
Discussion 1 – Capital Budgeting
Capital budgeting is a complicated process that is essential to good investment decisions by a company. Please give an example of a capital budgeting decision a company might need to make.
Are there examples in using the cost of capital in personal life? When or how have you compared the cost of getting money to the potential benefit of that money?
Once a business computes its cost of capital, discuss how a manager might decide whether to take on a project or not. How are capital project investments prioritized?
Sample Solution
Yes, the cost of capital can be used in personal life. For example, when making an investment decision, one should consider their own cost of capital to measure the opportunity costs associated with choosing to invest in a particular asset versus another. Additionally, those looking to borrow money may need to determine their own cost of capital that lenders will charge them for taking out a loan. This information will help individuals understand how much they will have to pay back over time and make more informed decisions about whether or not they are comfortable taking on such debt.