Cost of Capital
Cost of capital is the blended cost of debt and equity financing, representing the minimum return required to justify an investment and used as the discount rate in DCF analysis.
| Cost Component | Typical Rate |
| Cost of debt (after-tax) | 4% to 6% (UAE mortgages) |
| Cost of equity | 10% to 15% (required equity return) |
| WACC (weighted average) | 7% to 10% depending on leverage |
| Risk-free rate | 3% to 5% (UAE or US treasuries) |
| Equity risk premium | 5% to 8% above risk-free |
| Property-specific premium | Plus 1% to 3% for asset risk |
| WACC Calculation Example | Inputs |
| Property value | AED 10M |
| Debt (60%) | AED 6M at 5.5% interest |
| Equity (40%) | AED 4M at 12% required return |
| WACC | (0.6 times 5.5%) plus (0.4 times 12%) = 8.1% |
| Use in valuation | (0.6 times 5.5%) plus (0.4 times 12%) = 8.1% |
| Hurdle rate | Investment must exceed 8.1% to create value |
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