Inflation, Interest and Cost of Capital
Money may lose value over the course of time due to inflation. Properly invested money can offset inflation and additionally earn and accumulate interest on top of inflation during the lifetime of the investment. Inflation and interest are linked to each other and determine the cost of borrowed capital. In addition, returns for equity investors include venture risks premiums. In this respect, the Weighted Average Costs of Capital (WACC) approach is introduced. These are key financial parameters for the evaluation of capital investments.
Unable to display preview. Download preview PDF.