The Cost of Capital refers to the return a company needs to earn on its investments to satisfy its investors. It represents the opportunity cost of using funds for a specific project instead of investing them elsewhere. This cost is crucial for businesses when making decisions about financing and investment, as it helps determine whether a project will generate sufficient returns. Companies typically calculate their cost of capital by considering the costs of different sources of funding, such as debt and equity. The overall cost is often expressed as a percentage, which reflects the risk associated with the investment and the expected returns required by investors.