6. Stocks, Bonds, and the Weighted Average Cost of Capital

Why Is the Cost of Capital Important to HR Managers?

No business strategy and no HR strategy can create value for the firm unless it generates a return on investment greater than the firm’s cost of capital. For that reason it is critical to understand what determines a firm’s cost of capital and the implications of the cost of capital for all strategic and operating decisions made by the firm. The basic concept is a simple one. For example, suppose you want to open a restaurant where you can show off your skills as a chef and make enough money to support your family. To get this business started, you need $500,000, all of which you borrow from your brother-in-law at 8%. Your cost of capital ...

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