Compensation Glossary

Cost of Capital

An economic concept that may be defined in various ways. 1) A discounted rate equating the market value of securities with the current value of cash flows to the security owners. 2) A discount rate equating market value of securities to the current value of the net operating income of a company, after tax. 3) May also refer to minimum rate of return, which must be assumed of a possible investment for the market value of the company not to be affected.