Background: Cost-of-Capital in the Finance Literature

Schlegel, Dennis

doi:10.1007/978-3-319-15135-9_2

Cited by 3 publications

(2 citation statements)

References 98 publications

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“…Section 5 concludes. Schlegel (2015) provides perspective on the cost of capital's dual nature. What is "return" to investors is a "cost" of capital to the firm.…”

Section: Introductionmentioning

confidence: 99%

A look at the actual cost of capital of US firms

Moore

2016

Cogent Economics & Finance

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Abstract:The capital asset pricing model (CAPM) receives both criticism and widespread adoption by practitioners and academics as the weighted average cost of capital (WACC) equity component. This study introduces two new costs of equity measures to address CAPM criticisms and provide new perspective on WACC estimates. The firm-based measure focuses on firm-investor cash flows while the market-based measure focuses solely on actual market returns. This study applies its firm and market-based WACC measures, along with the traditional CAPM-based WACC measure, to a broad sector-based cross section from 1972 to 2015. PUBLIC INTEREST STATEMENTThis work introduces two new equity finance measures to provide perspective on the troublesome equity component of a firm's overall cost of capital. The results confirm that the common equity finance measure, CAPM, is a fair measure for use in computing the overall cost of capital. The results also show that firminvestor cash flows differ significantly from CAPM predictions and actual market returns. In particular, the results suggest that market participants play a significant role alongside firms in actual market returns. Other results of this study provide new perspective on why small firms tend to have higher returns than large firms and raises questions on the role of firm cash flow generation in actual market returns. Finally, the comprehensive sector-based cross-sectional data can serve as a reference for practitioners in their cost of capital estimations.

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“…Section 5 concludes. Schlegel (2015) provides perspective on the cost of capital's dual nature. What is "return" to investors is a "cost" of capital to the firm.…”

Section: Introductionmentioning

confidence: 99%

A look at the actual cost of capital of US firms

Moore

2016

Cogent Economics & Finance

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“…The estimation model built on Markowitz's theory was first introduced (Shum & Tang;2005), in the CAPM, the market balance has an important role. When the market is in equilibrium or equilibrium, the rate of return required by the investor for a stock will be affected by the risk of the stock (Schlegel;.…”

Section: Literature Reviewmentioning

confidence: 99%

Stock Investment Decisions to Refund Level of Profits In Dealing Probability of Financial Market Risk

Lara¹,

Irena²

2018

(GJEB)

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One of the objectives of this research is to know the types of shares that are undervalued and overvalued by applying Capital Asset Pricing Model (CAPM) method, based on stock return and risk as a consideration in stock investment decision making process. In this study using the population on the company's shares listed in the Compass Market Index 100 period November 2014-November 2017. Sample testing is done by processing data from the company's financial statements.The number of samples used in this study as many as 30 company shares, using purposive sampling method. The results showed that from 30 samples, showed 16 stocks included into the stock efficient (undervalued), meaning that the stock has an individual stock returns greater than expected rate of return. Therefore, the decision taken should sell the shares.While the remaining 14 shares are included in the stock is not efficient (overvalued), meaning that the stock has an individual stock return rate is smaller than the expected rate of return. Therefore the decision taken should sell the shares.

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Appraisal of Socio-Technical Water Loss Control Strategies Using Cost-Benefit Analysis in a Water Supply Network

Mathye

Scholz²,

Nyende‐Byakika³

2022

Water

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The authors conducted a socio-technical cost–benefit analysis (CBA) in Alexandra Township (Alex for short) by combining three water loss control investment strategies: (i) pipeline and infrastructure upgrades, (ii) repair and maintenance, and (iii) socio-domestic retrofitting capital. The researchers performed the CBA using sensitivity analysis methodologies such as marginal cost of capital (MCC), weighted average cost of capital (WACC), coefficient of variance (CV), the net present value (NPV) ratio, and cumulative and total cost methods. The findings for socio-domestic retrofitting capital investment showed that at an average investment cost of USD 5735 per household, consumption was reduced from 1369.4 m3/year to 301.99 m3/year, whereas a projected water savings average of 521.05 m3/household/year was achieved. The results show that the cumulative cost of water losses equaled USD 43.9 million per year, and that, if the water loss trend continues beyond the year 2026, almost 100% of the system input volume (SIV) will be non-revenue water (NRW) in the water balance. Using the MCC method, the integrated results for the socio-technical strategy showed that the economic level of leakage (ELL) was achieved at a WACC of 16.2, a CV of 0.66, and an NPV ratio or net capital risk of 0.246. This study demonstrates that the socio-technical approach is a viable alternative for water loss control and may be adopted in various parts of the world.

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Background: Cost-of-Capital in the Finance Literature

Cited by 3 publications

References 98 publications

A look at the actual cost of capital of US firms

A look at the actual cost of capital of US firms

Stock Investment Decisions to Refund Level of Profits In Dealing Probability of Financial Market Risk

Appraisal of Socio-Technical Water Loss Control Strategies Using Cost-Benefit Analysis in a Water Supply Network

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