Cost of capital is the minimum return a company must earn on investments to satisfy investors and lenders. It represents the opportunity cost of funding business operations. Calculate using WACC (Weighted Average Cost of Capital) which combines cost of debt and equity. For example: if debt costs 5% and equity costs 12%, with 40% debt and 60% equity, WACC equals 9.2%. Use it to evaluate projects: only pursue investments with returns exceeding cost of capital. Lower cost of capital through better credit ratings and optimal debt equity mix.