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Marginal Cost of Capital

Marginal Cost of Capital Definition

Marginal Cost of Capital is the cost of raising one additional dollar of capital. This cost is calculated as a percentage and is compared to the return that is expected to be earned on  the proposed investment.  As more capital is raised, the marginal cost of capital rises.


Additional meaning of Marginal Cost of Capital:

The marginal cost of capital depends on the type of capital used (common stock, retained earnings, preferred stock, and debt), e.g. unsecured or subordinated debt is more expensive than debt that is backed by collateral.





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