Discussion on Cost of Capital

The cost of capital is a required return for an organization that is must require in the capital budgeting projects. Cost of capital also represents the OC (opportunity cost) associated with a project or a specific type of investment by the organization. According to the course module and textbook chapter 11, while selecting a project organizational administration to calculate the cost of capital for all available projects and select the project that presents the higher possibility of meeting the cost of capital or required return (Wahlen, Baginski, & Bradshaw, 2010).

A project that does not meet the cost of capital will have negative cash flows and loss for the business, therefore, calculating the cost of capital is highly important for the organizations. Apple Inc. also measures the cost of capital before investing in the start-up of a new project or introduction of a new product. A simple measure to calculate the cost of capital in Apple Inc. is the Weighted Average Cost of Capital (WACC). Organizations such as Apple Inc. measure various costs associated with the project and business to check which projects have a higher possible return after meeting an expected cost linked with the project (Annualreports.com, 2019).

According to the textbook, organizations calculate cost linked with the equity by calculating continuing dividends and future dividends for common shareholders (Wahlen, Baginski, & Bradshaw, 2010). Common measures for costs are Cost of Preferred Equity Capital (CPEC) and Weighted Average Cost of Capital (WACC). Moreover, in Apple Inc. and other companies interest and income tax amounts are also calculated to measure cost linked with business project and operations (Mergers & Inquisitions / Breaking Into Wall Street, 2014). In Apple Inc. interest amount represent the cost of debt acquired from the market to execute business operations.

References of Cost of Capital

Annualreports.com. (2019). Apple Inc. Retrieved from www.annualreports.com: http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_AAPL_2019.pdf

Mergers & Inquisitions / Breaking Into Wall Street. (2014). What Working Capital Means in Valuation and Financial Modeling. Retrieved from www.youtube.com: https://www.youtube.com/watch?v=Kkf_eyB3sTI&amp=&feature=youtu.be

Wahlen, J. M., Baginski, S. P., & Bradshaw, M. (2010). Financial Reporting, Financial Statement Analysis and Valuation: A Strategic Perspective. Cengage Learning.