What is (Weighted) (Marginal) Cost of Capital
Jaap de Jonge, Management Consultant, Netherlands
Obviously, both Weighted Average Cost of Capital (WACC)
and Marginal Cost of Capital measure the Cost of Capital
Capital is any money used to finance a business and/or its operations. There are many different sources (types) of capital: traditional debt or equity financing or owner financing, grants, gains on investment capital, retained earnings, accrual financing contracts and forward payment agreements on capital.
There is a cost associated with obtaining capital. The cost is NOT the same for each type! The cost also changes over time.
That's why we have the Marginal Cost of XYZ: the cost associated with raising one extra dollar at a particular moment via any particular form of capital.
Likewise, the Weighted Marginal Cost of Capital (WMCC) is the WACC applicable to the next dollar of the total new financing.