This technical note provides a student primer of firm cost of capital from a conceptual and application perspective. The note provides student intuition on the traditional theory of cost of debt, cost of equity, and weighted-average cost of capital. Moreover, it provides detail on the common approaches to estimating the cost of capital. Specific examples are provided. The note is updated with market data from 2015. Excerpt UVA-F-1710 Rev. Sept. 18, 2018 The Cost of Capital: Principles and Practice Sue Pane, the chief executive at American bakery giant Tasty Bread, was preparing for next week's meeting with Tony Marmellata. Marmellata had a wealth of experience in the jams and jellies business and was a key individual in Pane's interest in a major expansion into this business. A team had spent several weeks gathering data to build a robust financial forecast. Based on this analysis, Pane anticipated that the expansion into producing jams and jellies would require a $ 250 million up-front investment of cash and generate an expected return of 7.5% over the next 10 years. She appreciated that the returns might be much higher or much lower than the forecast, which caused her to question whether a 7.5% expected return was good enough for the risk this $ 250 million proposal represented for Tasty Bread. To assess the opportunity, Pane was in need of a benchmark return with which she could evaluate the 7.5% expected return. It was time for her to know the cost of capital. The Cost of Capital . . .