Real and Nominal Cost of Capital
Cost of capital is the cost which the company spends in order to acquire the fund. It is the return which the investors expect to receive after investing in the company. It is the cost of both debt and equity which the company can raise the fund to support its new investments project. The management needs to ensure that the return on investment needs to be higher than the cost of capital otherwise it will not make any profit for the investors.
Real cost of capital uses the real interest rate to calculate. The real interest rate is the interest rate that already adjusts inflation.
Nominal cost of capital uses the nominal rate in the calculation. The nominal rate is the interest rate which is not