mes defined as funds supplied to a firm by investors The cost of capital used in capital budgeting should reflect the average cost of the various sources of investor-supplied funds a firm uses to acquire assets. 38. Suppose you are the president of a small, publicly-traded corporation, Since you believe that your firms stock price is temporarily depressed, all additional capital funds required during the current year will be raised using debt. In this case, the appropriate marginal cost of capital for use in capital budgeting during the current year is the after-tax cost of debt 39 The before-tas cost of debt, which is lower than the after-tas cost, is used as the component cost of debt for purposes of developing the firm's WACC 40