Problem:
The weighted average cost of capital which is 9.48%. Explain how the cost of capital is used in net present value analysis. Explain how cost of capital is used in internal rate of return analysis.
Assume that 40% of Company A's capital structure is in the form of bonds and other debt. Total common stockholder equity provides 50% of the capital, and preferred stock provides 10%. The company has determined that the after-tax cost of its bonds and other debt is 6.2%. The cost of preferred stock is 8%, and the cost of common stock and retained earnings is 12.4%.
I got my weighted average cost of capital which is 9.48% but I am not sure how to how to explain how the cost of capital is used in net present value analysis, or explain how cost of capital is used in internal rate of return analysis.