This note describes how some of the most complex financial companies and financial consultants to estimate the cost of equity capital. It focuses on areas where finance theory is silent or ambiguous and practitioners are left to themselves. Review of the data show that prices Capital Asset Model (CAPM) is the most widely used model. The note discusses the methods companies use to assess three key elements necessary for the application of CAPM: a proxy for risk-free rate estimate beta, and equity market risk premium. The note is useful for students trying to apply the Capital Asset Pricing Model.
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by Robert S. Harris Source: Darden School of Business 10 pages. Publication Date: 07 Oct 2004. Prod. #: UV0402-PDF-ENG
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