Annualized Cost of Capital

Explore commonly used personal finance terms.

The annualized cost of capital represents the effective yearly cost of financing a project or investment. It is calculated by dividing the total capital costs by the duration of the financing, expressed as an annual rate. This metric helps investors and companies understand the financing burden and the minimum return required to justify the investment. Calculating the cost of capital helps determine whether a project or acquisition is financially viable, providing insights for resource allocation and financial planning.

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