when a company s incremental cost of capital rises investors take it as a warning that a company has a riskier capital structure investors begin to wonder whether the company may have issued too much debt given their current cash flow and balance sheet a turning point in the rise of a company s incremental cost of capital happens when investors avoid a company s debt due to worries over risk companies may then react by tapping the capital markets for equity funding unfortunately this can result in investors pulling back from the company s shares due to worries over the debt load or even dilution depending on how additional capital is to be raised 
incremental cost of capital and composite cost of capitalincremental cost of capital is related to composite cost of capital which is a company s cost to borrow money given the proportional amounts of each type of debt and equity a company has taken on composite cost of capital may also be known as weighted average cost of capital the wacc calculation is frequently used to determine the cost of capital where it weights the cost of debt and equity according to the company s capital structure a high composite cost of capital indicates that a company has high borrowing costs a low composite cost of capital signifies low borrowing costs 