The paper on cost of capital is presented to serve for dual purposes. The first one is to find out whether the cost of capital is independent of leverage or not in Nepalese manufacturing industries. The second one is to seek optimum level of capital mix if it is not independent. The paper shows that cost of capital in Nepalese manufacturing companies is not irrelevant (independent of leverage), and the optimum level of debt for the sample period is reported to be 26% of leverage ratio. The study period covers 67 pooled observations collected from 11 listed manufacturing companies for the period ranging from 2001-2013. Theoretical analysis on the inherent relationship among the components of average cost of capital is made in detail in order to derive the model equation on the cost of capital. The control variables employed in the regression analysis are growth and tangibility respectively.