INCREMENTAL COST OF CAPITAL

Average cost incurred by a company for each additional unit of debt or equity issued. It varies depending on the number of debt or equity units a firm desires to issue. The computation frequently used to get the incremental cost of capital is the weighted average cost of capital (WACC), weighing the debt and equity cost based on the firm’s capital structure. The cost of capital is normally equivalent to the hurdle rate, the required return rate for accepting or declining a project.