The cost of capital is the cost that is associated with the capital structure of a company. The strategy that the firm uses when financing its operations and investments influences its cost of capital. The total cost of capital of a firm is estimated using the weighted average cost of capital (WACC). A firm that uses external financing strategy will cause the cost of capital to increase compared to the firm that uses internal sources of finances. The firm may utilize internal sources of finances at no cost and therefore considered as a cheap source of finances.