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It is important to properly account for the capital cost as it entails huge amount of investments which should be depreciated over a period of time. TImely acquisition, maintainance and disposal of such capital expenditures should be properly planned as it greatly affects the efficiency of the operations, otherwise, it may result to a huge loss to the company as it can paralyze the partial or even entire operations of the business.
Cost of capital is actually a return expected from different stake holders on potential investments. It is a cost to the company and therefore accointed for as such.So for example if some knvestor wants to diversify from agriculture sector to food sector and he wants to know if he will generate profits or losses considerinf the return % he wants from his investment and the return wanted by debt holders and preferred stock holders on that particular project.
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