The cost of capital: perspectives for managers

John C. Groth (Professor of Finance, Texas A&M University, College Station, Texas, USA)
Ronald C. Anderson (Assistant Professor of Finance, School of Commerce, Economics and Politics, Washington and Lee University, Lexington, USA)

Management Decision

ISSN: 0025-1747

Publication date: 1 August 1997


Describes the conceptual meaning of the cost of capital (COC) and relates its use of COC in decisions that add value to a company. Illustrations provide the basis for an intuitive feel of the crucial role of COC in the pursuit of generating value. Explains the meaning of true economic value added (TEVA) and relates TEVA to COC and economic returns. Relates COC to the value generating cycle of a firm. Supplements the conceptual and intuitive notions of COC with pragmatic guidelines useful to the practising manager. Capital and the employment of capital have an especially crucial role in emerging and transition economies. Outlines the vital nature of COC in these economies and in decision making. Addresses issues at a level appropriate for professional managers regardless of their area of expertise and functional assignment.



Groth, J. and Anderson, R. (1997), "The cost of capital: perspectives for managers", Management Decision, Vol. 35 No. 6, pp. 474-482.

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Copyright © 1997, MCB UP Limited

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