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Marginal Cost of Capital

Marginal cost of capital is the cost of raising one more unit of capital. If company raise more capital, cost of capital will also raise. Suppose, your cost of capital is 10% ( Average)  for raising from  share capital, debt and public deposit. But if you are interested to raise one more dollar, you have to pay extra cost and this cost will be marginal cost of capital.

If company is raising fund through issuing new equity shares, following schedule of marginal cost of capital will clear this concept


If company has enough retained earning, then company can use this. With this, weighted average cost will be almost equal to marginal cost cost of capital. Now, question is how to calculate marginal cost of  capital. For calculating marginal cost of capital, we see both our current cost of capital and risk level. We have to give high cost of capital if we use this money for risky project.

Related : Steps to Calculate Weighted Average Cost of Debt

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Accounting Education: Marginal Cost of Capital
Marginal Cost of Capital
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Accounting Education
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