Critically evaluate the statement: 'Investment decisions are directly related to financial decisions influenced by the cost of capital'.

Cost of capital and its implication in investment decisions Cost of capital represents a rate that a company must overcome before it can generate value, and it is used extensively in the capital budgeting process to determine whether a company should proceed with a project or not. Another way to describe the cost of capital is the opportunity cost of making an investment in a business. A wise company management will only invest in initiatives and projects that will provide returns that exceed the cost of their capital. Cost of capital, from the perspective of an investor, is the return expected by them on their capital provided to a business. In other words, it is an assessment of the risk of a company's equity. In doing this, an investor may look at the volatility (beta) of a company's financial results to determine whether a certain stock is too risky or would make a good investment. A company's investment decisions for new projects should always generate a return that exceeds the firm's cost of the capital used to finance the project, otherwise; the project will not generate the return for investors.