Question: what is the difference between average cost of capital and marginal cost of capital?
Answer: While we evaluate the cost of additional funds raised, it is called the marginal cost of capital. ... For example, if Company A is financed by$100,000 of debt at 7%, $50,000 of equity at 12% and $75,000 of owner financing at 0%, the average cost of capital would be 7% + 12% + 0% divided by 3 = 19%/3 = 6.33%.