Capital charge rate

Capital charge rate

. The capital charge is the cost of capital times the amount of invested capital. This capital charge is a dollar amount. By capital charge rate is just the cost of capital. In other words, the capital charge rate is the rate or return required on invested capital.
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The model analysis also shows how the capital charge rate used for performance evaluation purposes should vary with the riskiness of the investment project.
To ensure such consistent valuation, capital charge rates for Departments must be increased (to yield pre-company tax rates) so that project valuations are at least approximately consistent with company tax paying entities.
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