Cost of Capital

Throughout this discussion, we will discuss the cost of capital. You may draw from personal experiences, your own research, or what you have learned from the readings.

When companies consider investing in a project, they determine the impact of this decision on their overall cost of capital.

Why do companies use the overall cost of capital for investment decisions even when only one source of capital will be used for the specific project under consideration?

Discuss.

When computing this cost of capital, does the firm use the historical costs of existing debt or the current costs as determined by the market?

Why?