What term describes the rate of return required by a company’s investors to finance new projects?

The term that describes the rate of return required by a company’s investors to finance new projects is "cost of capital." This concept encompasses the overall cost of obtaining funds through various sources, including equity and debt, to support the company's investments and growth initiatives. The cost of capital reflects the minimum return that investors expect, considering the risk associated with those projects.

Recognizing the cost of capital is crucial for companies when evaluating potential investments, as it serves as a benchmark against which the projected returns of new projects can be assessed. If projects do not meet or exceed the cost of capital, they may not create value for investors and could ultimately lead to a decrease in shareholder wealth.

While "cost of equity" refers specifically to the return required by equity investors, and "operational cost" pertains to the ongoing expenses associated with running a business, neither captures the broader notion of overall funding costs that include both equity and debt. "Investor return" is not a standard financial term that serves to identify this concept in the context of financing new projects. Therefore, "cost of capital" is the most comprehensive and accurate term to describe the rate of return required by investors for new project financing.