Cost of Capital Quotes

Obviously, consideration of costs is key, including opportunity costs. Of course capital isn't free. It's easy to figure out your cost of borrowing, but theorists went bonkers on the cost of equity capital. They say that if you're generating a 100% return on capital, then you shouldn't invest in something that generates an 80% return on capital. It's crazy.

We're guessing at our future opportunity cost. Warrenis guessing that he'll have the opportunity to put capital out at high rates of return, so he's not willing to put it out at less than 10% now. But if we knew interest rates would stay at 1%, we'd change. Our hurdles reflect our estimate of future opportunity costs.

Companies typically borrow money at less than their return on equity and therefore compound their return at the expense of lenders.

What happened after publication of our paper was that, for the next 40 years, people said, all right, we now know the answer to the capital structure question under ideal conditions.

The transaction cost approach maintains that some projects are easy to finance by debt and ought to be financed by debt. These are projects for which physical-asset specificity is low to moderate.

Rising interest rates are considered bad for stocks because they raise the cost of doing business and depress corporate earnings and because higher yields make bonds relatively more attractive than stocks to investors.

I think there's an awful lot of twaddle and bullshit on EVA. The whole game is to turn retained earnings into more earnings. EVA has ideas about cost of capital that make no sense. Of course, if a company generates high returns on capital and can maintain this over time, it will do well. But the mental system as a whole does not work.

Economic theory dictates that the value of a company is basically the present value of its future profits. To estimate Facebook's value through its future profits, we need to have a view on its user growth and how this will evolve in the next 10 to 50 years.

The cost of money rises dramatically if you can't afford to keep it in a bank.

Many businesses in an investment bank, not only at UBS, are structurally a loss leader, so they don't pay for the cost of capital.

It takes almost no capital to open a new See's candy store. We're drowning in capital of our own that has almost no cost. It would be crazy to franchise stores like some capital-starved pancake house. We like owning our own stores as a matter of quality control.

Profits in business always depend on the rate of interest: the higher the interest, the higher the rate of profit required.

Manipulating the bond market is so greatly reducing the cost of capital that so far companies have been able to maintain profit margins without raising prices. As a result, we've been exchanging capital cost for commodity costs but you can only do that for so long.

Stock price multiples are negatively correlated with real interest rates. As interest rates rise, the market multiple will fall.