The cost of capital can be thought of as the "magic number" that is used to decide whether a proposed corporate investment will increase or decrease the firm's stock price.

Question

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The cost of capital is the minimum rate of return that a company must earn on its investments in order to satisfy the expectations of its investors, and it is used as a benchmark for evaluating potential investment opportunities. If the return on a proposed investment is higher than the cost of capital, it is expected to increase the firm's stock price, while if the return is lower, it is expected to decrease the stock price. Therefore, the cost of capital can be considered a key factor in investment decision-making and its impact on the firm's overall financial performance.

The Cost of Capital Can Be Thought of as the "Magic