The overall percentage cost of the funds used to finance a firm's assets. Cost of capital is a composite cost of the individual sources of funds, including common stock, debt, preferred stock, and retained earnings. The overall cost of capital depends on the cost of each source and the proportion that source represents of all capital used by the firm. The goal of an individual or business is to limit investment to assets that provide a return that is higher than the cost of the capital that was used to finance those assets. Also called average cost of capital.