Determining the Cost of Capital for an Acquisition TargetThe cost of capital refers to the discount rate or capitalization rate that is used by corporate acquirers in assessing the value of an acquisition target, and in determining the price the acquirer might be willing to pay. In acquisition analysis, the cost of capital normally is expressed as a weighted average cost of capital, being a blend of the after-tax cost of debt and the cost of equity. The discount rate is either derived pursuant to a ‘build-up’ approach, or as an established ‘hurdle rate’ that is adjusted based on the specifics facts of each case.