Cost of capital curve

The capital cost curve of a company is a function that equity , debt or total liabilities of the company and a debt ratio of the company to the expected cost of equity , cost of debt and cost of capital reflects, with ${\displaystyle U}$ ${\displaystyle f:\left\{EK\left(U\right),FK\left(U\right),U\right\}\times \mathbb {R} _{0}^{+}\rightarrow {\text{Kapitalkostensätze}}}$

• ${\displaystyle U}$is a company whose liabilities consist only of senior debt and subordinated equity,
• ${\displaystyle EK\left(U\right)}$the equity of the company is, ${\displaystyle U}$
• ${\displaystyle FK\left(U\right)}$the debt of the company is. ${\displaystyle U}$

The capital cost curve of a company is particularly useful for this order:

• Cost of equity and cost of debt of the company, depending on the leverage ratio to compare the company with each other,
• the cost of capital to minimize the company by selecting an appropriate level of debt for the company is found.

Since the cost of capital curve for a company is typically only partially known, such considerations are mostly limited to theory .