A company that is looking to expand upon current operations will require an influx of money to plan and implement the next stage of growth. "A proper mix of equity and debt is vital for corporate growth” (Into Africa, 2006, p. 73).To determine if the company can realize the proposal of expanding, the company will need to evaluate the cost of capital. The cost of capital establishes if the company can raise money and if the capital project is worthwhile and financially sound for the company to pursue based on the rate of return. The evaluative measure of cost of capital is defined as the required rate of return and assesses the cost of debt and cost of equity. The cost of debt “is measured by the interest rate, or yield, paid to bondholders” (Block & Hirt, 2005, 7). The cost of debt is the effective rate the company pays on its current debt. Companies will “use various bonds, loans and other forms of debt, so this measure is useful for giving an idea as to the overall rate being paid by the company to use debt financing” (Investopedia, 2007). Company debt is comprised of both debt owed to lenders and equity of shareholders. An increased cost of debt of a company over others can identify a company to potential investors as a risky venture. Strategic debt financing allows organizations to procure funds needed to expand growth opportunities. “Without debt financing, corporate growth can become constrained" (Into Africa, 2006, p. 73). The cost of equity “represents the compensation that the market demands in exchange for owning the asset and bearing the risk of ownership” (Investopedia, 2007). The cost of equity reflects the opportunity cost and risk that shareholders have undergone for investing and partaking in ownership of the company. Debt is the cheapest form of financing, however, a company would be at risk to over use this form of financing. Creditors and investors generally accept a capital structure that uses 30-50% debt. A company’s use of debt beyond the...