- The cost of capital is the minimum required rate of return for a project given its riskiness, while the firm's cost of capital is the weighted average required return across all projects. - The cost of capital is used for investment decisions, debt policy design, and evaluating management performance. - It represents the expected return forgone by investing in a project rather than the next best alternative of similar risk. Various capital sources have different costs depending on their risk. - The weighted average cost of capital (WACC) is calculated by weighting the costs of different capital sources by their proportion of the total capital structure.