What is its link with cost of capital?

The cost of capital refers to the required return necessary to make an investment worthwhile, representing the opportunity cost of using funds for a particular investment instead of alternative options. A company's cost of capital is influenced by its capital structure, which includes debt and equity financing. Changes in the risk profile of a business, market conditions, or interest rates can affect its cost of capital, impacting investment decisions and overall valuation. Ultimately, a lower cost of capital can enhance a company's ability to pursue growth opportunities and maximize shareholder value.