Explanation:

Cost of capital of an investor, is equal to return, an investor can fetch from the next best alternative investment. In simple words, it is the opportunity cost of investing the same money in different investment having similar risk and other characteristics. From a financing angle, cost of capital is simply the cost which is paid for using the capital. Alternatively, a percentage return on investment that convinces an investor to invest in a particular project or company is the appropriate cost of capital for that investor. Cost of Capital is widely used as basis of Investment projects and evaluating the alternative sources of finance.