## Marginal Cost of Capital (MCC)

The marginal cost of capital is the cost of raising one additional rupee of capital — i.e., the cost incurred in raising new funds.

### Key idea

MCC = average cost of capital computed using marginal weights — the proportions in which the firm intends to raise the new funds.
The intended financing proportions are applied as weights to the marginal component costs.

### How it differs from WACC

The calculation procedure is identical to WACC, with one crucial difference: every figure (weights and costs) relates only to the new/additional funds being raised, not to the existing capital structure.

Feature	WACC	MCC
Funds covered	Entire existing capital	Only new funds raised
Weights	Existing capital proportions	Intended (marginal) proportions of new funds
Use	Overall cost benchmark	Evaluating an incremental fund-raising decision

Worked example

### Example 1

Marginal cost of new funds: A firm plans to raise ₹10,00,000 of new finance in the ratio 60% equity (cost 16%) and 40% debt (cost 9%).

MCC = (0.60 × 16%) + (0.40 × 9%) = 9.6% + 3.6% = 13.2%

Note the weights are the intended proportions of the new issue, not the existing capital structure.

⚠️ Common exam mistakes

Using existing capital-structure weights instead of the intended (marginal) weights of the new funds.
Including existing capital in the computation — MCC considers only newly raised funds.
Confusing MCC with WACC; the procedure is the same but the data set is different.

Reference:

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