Define the meaning of rate of return on investment
An investment project which provides positive NPV when its cash flows are discounted by cost of capital makes a net contribution to the wealth of shareholders. If project has zero NPV , it means that it's a return just equal to the cost of capital and acceptance or rejection of the project won't affect the wealth of shareholders The cost of capital is minimum required rate of return on investment project which keeps the present wealth of shareholders unchanged. It may be, hence, noted that cost of capital signifies a financial standard for allocating the firm's funds, supplied by creditors andowners, to the various investment projects in most efficient manner.