Capital Charge

The capital charge is the return that must cover the cost of capital used by a project to realize it is paid in units of money instead of as a percentage. This figure is based on the minimum return that investors demand in return for using their funds. If the returns of a project do not meet this minimum threshold value, it will not be successful to perform even if there are positive returns.

Capital Charges Each class of capital depends on the return of investors. It is found by multiplying the invested capital of a project by a percentage. This percentage is a heavy average of investor expectations. An analyst must determine these two numbers before calculating capital charges.

The capital charge is significant because it is used to calculate another financial concept called economic profit. It deducts net operating profit or NOPAT, capital charge after tax. It shows whether the project has sufficient returns for the investors in the project to make it worthwhile.