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Meaning of cost of capital

The cost of capital of a firm refers to the the cost that a firm incurs  in retaining the funds obtained from various sources (i.e equity shares, preference shares ,debt, retained earnings)
 Components of cost of capital
The overall cost of capital of a firm consists of the cost of various segments of the total funds,which maybe identified as follows:

  1. Cost of debt capital i.e.debentures and loans from various institutions
  2. Cost of preference capital
  1. Cost of equity capital
  1. Cost of retained earnings
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