Marginal cost of capital

The marginal cost of capital is the cost of raising one more euro of financing, which rises above a firm's current WACC once cheaper sources are used up and costlier equity or debt must be tapped.

ByHoang TruongUpdated July 5, 2026

See it move

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A firm has €300,000 of retained earnings at 10% and a 60/40 target equity-debt split, with debt at 6%. Up to €500,000 of new financing, WACC is 8.4%. Beyond that break point, further equity must be newly issued at 12%, pushing WACC up to 9.6%.

Where it fits

TopicCost of Capital & WACCAdvancedSubjectCorporate FinanceAdvanced

The formula

LaTeX

BP = \frac{\text{Amount available}}{\text{Target weight}}

Variables

$B P$: Break point, in total new financing raised (€)
$Amount available$: Amount of the cheaper capital source available before its cost rises (€)
$Target weight$: Weight of that capital source in the firm's target capital structure (decimal)

Gives the total amount of new financing a firm can raise before the marginal cost of capital jumps to the next, more expensive tier.