The bank's net interest margin--the difference between its cost of capital and average loan rate--has fallen for five consecutive quarters, to 0.9%.

FORBES: After the bubble

For the poor, an investment is worthwhile only if its returns exceed the cost of capital, ie, the rate they must pay on money borrowed from the bank.

ECONOMIST: The World Bank cannot go where its research is leading it

For richer entrepreneurs who can finance themselves, on the other hand, an investment is worth doing if it exceeds the opportunity cost of capital, ie, the rate they can earn by putting their money in the bank.

ECONOMIST: The World Bank cannot go where its research is leading it

This makes it all the more surprising that some companies pay little attention to the impact on the discount rate of changes in their cost of capital.

ECONOMIST: Corporate finance

If a firm can deploy the incremental dollar of cash flow at a rate of return greater than its cost of capital, it should pursue acquisitions or internal capital projects, as these methods will be the fastest way to build shareholder value.

FORBES: Magazine Article

The notion behind the yardsticks is simple: a company creates value only if the return on its capital is greater than the opportunity cost of it, or the rate that investors could earn by investing in other securities with the same risk.

ECONOMIST: A star to sail by?

We still believe that the real cost of capital is too low, and hence expect a long drawn out rate hiking cycle into 2012.

FORBES: China Rate Increases Not Done Yet, Says Nomura

What nongovernment entity is going to lay out the necessary billions of dollars if politically minded state rate-setters won't let them recover both the capital outlay and the true cost of maintenance, not to mention earning a decent return for shareholders and creditors?

FORBES: Magazine Article