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The cost of capital is a weighted average of investors’ required rates of return. It represents the minimum rate of return a project can earn and still satisfy investors’ expectations.

Discuss the following:

Marie LeBlanc is still pondering the acquisition of drilling rigs to her company. She has decided on a mix of debt and equity to raise the necessary capital. As her CFO, your excellent services are called upon, yet again. How would you explain to her what the weighted average cost of capital is and how it is calculated?