Why Cost of Capital is Important We know that the return earned on assets depends on the risk of those assets The return to an investor is the same as the cost to the company Our cost of capital provides us with an indication of how the market views the risk of our assets Knowing our cost of capital can also help us determine our required return for capital budgeting projects3 Why Cost of Capital is Important n We know that the return earned on assets depends on the risk of those assets n The return to an investor is the same as the cost to the company n Our cost of capital provides us with an indication of how the market views the risk of our assets n Knowing our cost of capital can also help us determine our required return for capital budgeting projects