The term "cost of capital" is used to describe the amount it costs a company to finance its operations through a mix of debt and equity. Other terms that are used interchangeably with the phrase "cost of capital" include "capital costs," "investment costs," and "opportunity costs." Another related term is "weighted average cost of capital" (WACC), which represents the average cost of all types of capital used by a company, including equity, debt, and preferred stock. Companies use the cost of capital to determine whether an investment or project is worth pursuing, as it indicates the minimum return required to cover the costs of financing.