The marginal cost of capital (MCC) is the rate of return an investor receives from a new source of capital that is raised at the current level of capital ut...
The marginal cost of capital (MCC) is the rate of return an investor receives from a new source of capital that is raised at the current level of capital utilization. It is the incremental cost of capital associated with issuing new shares, and is calculated as the change in the firm's profit divided by the change in the firm's capital employed.
The MCC is an important measure of a company's cost of capital because it represents the cost of raising money from outside investors. It is also used by investors to compare different sources of capital, such as debt and equity.
The MCC can be calculated using the following formula:
Where:
ΔP is the change in profit
ΔK is the change in capital employed
The marginal cost of capital is a relevant concept for investors and financial analysts because it can help them make informed decisions about capital allocation. For example, if a company is considering issuing new shares, the MCC will help them determine the maximum price they should set for the shares to raise capital at the minimum cost of capital