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Estimating A Firms Expected Cost Of Equity Capital Using Consensus Forecasts
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Book Synopsis Estimating a Firm's Expected Cost of Equity Capital Using Consensus Forecasts by : Holger Daske
Download or read book Estimating a Firm's Expected Cost of Equity Capital Using Consensus Forecasts written by Holger Daske and published by . This book was released on 2004 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we propose a technique for estimating a firm's expected cost of equity capital derived from analyst consensus forecasts and stock prices. Building on the work of Gebhardt/Lee/Swaminathan (2001) and Easton/Taylor/Shroff/Sougiannis (2002), our approach allows daily estimation, using only publicly available information at that date. We suggest this technique for application in investment and capital budgeting decisions at the company level. We then estimate the expected cost of equity capital at the market, industry and individual firm level using historical German data from 1989-2002 and examine firm characteristics which are systematically related to these estimates. Finally, we demonstrate the potential practical applicability of the concept in a contemporary case study for DaimlerChrysler and the European automobile industry.
Book Synopsis Estimating the Expected Cost of Equity Capital Using Analysts' Consensus Forecasts by : Holger Daske
Download or read book Estimating the Expected Cost of Equity Capital Using Analysts' Consensus Forecasts written by Holger Daske and published by . This book was released on 2008 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we develop a technique for estimating a firm's expected cost of equity capital derived from its stock price and analysts' consensus forecasts. Our estimation method based on the residual income valuation model builds on Gebhardt/Lee/Swaminathan (2001) and Easton/Taylor/ShroffSougiannis (2002), but extends and refines their approaches by explicitly allowing daily estimation and using only publicly available information at that estimation date. We apply this technique to estimate the expected cost of equity capital at the market, industry and individual firm level using historical German data from 1989-2002 and examine firm characteristics which have been systematically related to these estimated return expectations.
Book Synopsis Estimating the Expected Cost of Equity Capital Using Consensus Forecasts by : Holger Daske
Download or read book Estimating the Expected Cost of Equity Capital Using Consensus Forecasts written by Holger Daske and published by . This book was released on 2004 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Estimating the Cost of Capital Implied by Market Prices and Accounting Data by : Peter Easton
Download or read book Estimating the Cost of Capital Implied by Market Prices and Accounting Data written by Peter Easton and published by Now Publishers Inc. This book was released on 2009 with total page 148 pages. Available in PDF, EPUB and Kindle. Book excerpt: Estimating the Cost of Capital Implied by Market Prices and Accounting Data focuses on estimating the expected rate of return implied by market prices, summary accounting numbers, and forecasts of earnings and dividends. Estimates of the expected rate of return, often used as proxies for the cost of capital, are obtained by inverting accounting-based valuation models. The author describes accounting-based valuation models and discusses how these models have been used, and how they may be used, to obtain estimates of the cost of capital. The practical appeal of accounting-based valuation models is that they focus on the two variables that are commonly at the heart of valuations carried out by equity analysts -- forecasts of earnings and forecasts of earnings growth. The question at the core of this monograph is -- How can these forecasts be used to obtain an estimate of the cost of capital? The author examines the empirical validity of the estimates based on these forecasts and explores ways to improve these estimates. In addition, this monograph details a method for isolating the effect of any factor of interest (such as cross-listing, fraud, disclosure quality, taxes, analyst following, accounting standards, etc.) on the cost of capital. If you are interested in understanding the academic literature on accounting-based estimates of expected rate of return this monograph is for you. Estimating the Cost of Capital Implied by Market Prices and Accounting Data provides a foundation for a deeper comprehension of this literature and will give a jump start to those who have an interest in these topics. The key ideas are introduced via examples based on actual forecasts, accounting information, and market prices for listed firms, and the numerical examples are based on sound algebraic relations.
Book Synopsis Cost of Capital by : Shannon P. Pratt
Download or read book Cost of Capital written by Shannon P. Pratt and published by John Wiley & Sons. This book was released on 2008-02-25 with total page 448 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this long-awaited Third Edition of Cost of Capital: Applications and Examples, renowned valuation experts and authors Shannon Pratt and Roger Grabowski address the most controversial issues and problems in estimating the cost of capital. This authoritative book makes a timely and significant contribution to the business valuation body of knowledge and is an essential part of the expert's library.
Book Synopsis Cost of Capital by : Shannon P. Pratt
Download or read book Cost of Capital written by Shannon P. Pratt and published by John Wiley & Sons. This book was released on 2014-03-12 with total page 1344 pages. Available in PDF, EPUB and Kindle. Book excerpt: A one-stop shop for background and current thinking on the development and uses of rates of return on capital Completely revised for this highly anticipated fifth edition, Cost of Capital contains expanded materials on estimating the basic building blocks of the cost of equity capital, the risk-free rate, and equity risk premium. There is also discussion of the volatility created by the financial crisis in 2008, the subsequent recession and uncertain recovery, and how those events have fundamentally changed how we need to interpret the inputs to the models we use to develop these estimates. The book includes new case studies providing comprehensive discussion of cost of capital estimates for valuing a business and damages calculations for small and medium-sized businesses, cross-referenced to the chapters covering the theory and data. Addresses equity risk premium and the risk-free rate, including the impact of Federal Reserve actions Explores how to use Morningstar's Ibbotson and Duff Phelps Risk Premium Report data Discusses the global cost of capital estimation, including a new size study of European countries Cost of Capital, Fifth Edition puts an emphasis on practical application. To that end, this updated edition provides readers with exclusive access to a companion website filled with supplementary materials, allowing you to continue to learn in a hands-on fashion long after closing the book.
Book Synopsis Estimating the Cost of Equity Capital for a Division of a Firm by :
Download or read book Estimating the Cost of Equity Capital for a Division of a Firm written by and published by . This book was released on 1989 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Estimating Firms' Expected Cost of Equity Capital by : Jan A. Kempkes
Download or read book Estimating Firms' Expected Cost of Equity Capital written by Jan A. Kempkes and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Estimating beta and Cost of Equity Capital for Non-traded Transportation Companies by : Sascha Heller
Download or read book Estimating beta and Cost of Equity Capital for Non-traded Transportation Companies written by Sascha Heller and published by diplom.de. This book was released on 2014-04-11 with total page 71 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inhaltsangabe:Introduction: Estimating the cost of equity capital has two major implications. First, it reflects the return to a company s stock which an equity investor expects to receive from his investment. He makes his decision upon whether he could earn a higher rate of return in an alternative investment of equivalent risk. Second, a company must earn the cost of capital (both debt and equity) through its undertaken projects. It is hence relevant for decisions on undertaking positive net present value projects which are of similar risk as the company s average business activities. It also substantially influences the pricing of an entire firm as far as the valuation is based on a discounted cash flow model. A lot of effort has been done in the past to achieve accurate models which precisely determine this cost. Building on the modern portfolio theory of Harry Markowitz, a widely used and commonly known model in this context is the Capital Asset Pricing Model (CAPM). Introduced by several researchers in the 1960s, it is still one of the most applied methods for practitioners. However, it suffers from several shortcomings, including statistical caveats, economic assumptions, the absence of market frictions and the behaviour of market participants. An upgrade to this model was provided by Stephen Ross which has resulted in the Arbitrage Pricing Theory (APT). It combines several risk factors in addition to one market proxy, as it is the case in the CAPM, and is less restrictive in its assumptions. But both CAPM and APT require observable market data, i.e. stock prices, of the analysed companies. These models thus only work for publicly listed firms. If research should be done on non-traded companies, however, an alternative methodology must be applied. In general, data from the balance sheet, the income statement and the cash flow statement are available for both listed and non-listed companies. While accounting data have widely been used in the past as well and have been assumed to provide valuable information in explaining stock returns, this line of research has dissipated over time. Only a few key figures, such as size and financial leverage, are still considered to be relevant. However, they can be used to indirectly estimate a firm s beta by assessing their explanatory power in a CAPM or APT framework. This methodology is particularly beneficial for firms which are not listed because there cannot be observed any stock price movements. [...]
Book Synopsis Estimating Expected Cost of Equity Capital by : Christine Botosan
Download or read book Estimating Expected Cost of Equity Capital written by Christine Botosan and published by . This book was released on 2001 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we estimate the expected cost of equity capital using the unrestricted form of the classic dividend discount formula and examine the extent to which these estimates (rDIV ) reliably proxy for expected cost of equity capital. We find that the rDIV estimates are associated with six risk proxies suggested by theory and prior research in a manner consistent with expectations; the explanatory power of the model is approximately 26%. Based on these results we conclude that the rDIV estimates are a valid proxy for expected cost of equity capital.Estimating rDIV requires a terminal value forecast. Since such forecasts are not always available we also assess the reliability of estimates produced by imposing three alternative terminal value assumptions on the dividend discount model. Specifically, rGORDON (Gordon and Gordon (1997)) imposes a firm-specific assumption; rGLS (Gebhardt, Lee and Swaminathan (2001)) imposes an industry-specific assumption and rOJN (Ohlson and Juettner-Nauroth (2000) and Gode and Mohanram (2001)) imposes an economy-wide assumption. We find that the rGORDON estimates have the highest correlation with rDIV and behave in a manner consistent with expectations with respect to their relationships with the risk proxies. We conclude that, when sufficient data to estimate rDIV is unavailable, rGORDON represents a reasonable substitute. Finally, our data indicate that although rDIV and rGORDON reflect the distribution of expected cost of equity capital, neither measure (nor any of the alternatives) should be relied upon to estimate the magnitude of expected cost of equity capital and/or implied risk premiums.
Book Synopsis Costs of Equity Capital and Model Mispricing by : Lubos̆ Pástor
Download or read book Costs of Equity Capital and Model Mispricing written by Lubos̆ Pástor and published by . This book was released on 1998 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: Costs of equity for individual firms are estimated in a Bayesian framework using several factor-based pricing models. Substantial prior uncertainty about mispricing often produces an estimated cost of equity close to that obtained with mispricing precluded, even for a stock whose average return departs significantly from the pricing model's prediction. Uncertainty about which pricing model to use is less important, on average, than within-model parameter uncertainty. In the absence of mispricing uncertainty, uncertainty about factor premiums is generally the largest source of overall uncertainty about a firm's cost of equity, although uncertainty about betas is nearly as important
Book Synopsis Valuation of Common Stock and the Cost of Equity Capital by : John Gregory McDonald
Download or read book Valuation of Common Stock and the Cost of Equity Capital written by John Gregory McDonald and published by . This book was released on 1967 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Alternative Estimates of the Cost of Equity Capital for Australian Firms by : Giang Truong
Download or read book Alternative Estimates of the Cost of Equity Capital for Australian Firms written by Giang Truong and published by . This book was released on 2007 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate the cost of equity capital for a sample of Australian firms using the CAPM and valuation models which are based on analyst forecasts of earnings and dividends. We find that the use of a composite of time-series and analyst forecasts rather than raw analyst forecasts results in cost of capital estimates that better explain the cross-sectional variation in future stock returns. Cost of capital estimates from the CAPM provide the weakest explanation of future stock returns. Cost of capital estimates from the valuation models are also found to be significantly related to key firm characteristics such as size, book-to-market and financial leverage. A variant of the dividend discount model provides the best cost of capital estimates when judged by their ability to explain the cross-section of future returns and their association with firm risk characteristics.
Book Synopsis The Cost of Capital by : Seth Armitage
Download or read book The Cost of Capital written by Seth Armitage and published by Cambridge University Press. This book was released on 2005-03-17 with total page 380 pages. Available in PDF, EPUB and Kindle. Book excerpt: A thorough exposition of the theory relating to the cost of capital.
Book Synopsis The Cost of Capital by : Cleveland S. Patterson
Download or read book The Cost of Capital written by Cleveland S. Patterson and published by Bloomsbury Publishing USA. This book was released on 1995-04-30 with total page 342 pages. Available in PDF, EPUB and Kindle. Book excerpt: Knowledge about the magnitude of the cost of capital invested in an asset and its determinants is essential for the analysis of corporate investment decisions and for assessing profitability. This book provides a clear conceptual understanding of the cost of capital, the characteristics of an asset that influence it, and a critical, comprehensive, and up-to-date evaluation of practical means for estimating its magnitude. It is intended primarily for use by professional managers, but will also be valuable to future managers in advanced capital budgeting courses. The focus of the discussion is on estimation methods that are theoretically sound and consistent with a corporate goal of value creation. Three methods are analyzed in depth: the discounted cash flow model, the capital asset pricing model, and arbitrage pricing theory. For each method, the basic theory is set out in a nontechnical manner and empirical evidence in support of the model is critically reviewed. The bulk of the discussion then focuses on practical means for implementing the methods for decision-making purposes. Later chapters focus on the effects of the debt-supporting characteristics of assets, on the valuation of options embedded in securities, and on the estimation of the cost of capital for evaluating international investments. The final chapter discusses certain aspects of the use of cost of capital in public utility regulation. Care is taken to separate out key issues from more peripheral material through a comprehensive set of supplementary notes.
Book Synopsis Commentary on Implied Cost of Equity Capital Estimates as Predictors of Accounting Returns and Stock Returns by : Charles C. Y. Wang
Download or read book Commentary on Implied Cost of Equity Capital Estimates as Predictors of Accounting Returns and Stock Returns written by Charles C. Y. Wang and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The expected rate of equity returns is a central input into various managerial and investment decisions that affect the allocation of scarce resources. Research on capital markets has devoted significant effort to studying how and why expected returns vary over time and across firms. Cochrane (2011) called these questions the central organizing agenda in contemporary asset-pricing research.At the heart of this research agenda lies a longstanding measurement problem: ex-ante expected returns are unobservable and ex-post realized returns are noisy proxies (Campbell, 1991; Vuolteenaho, 2002). Since Botosan (1997), the accounting literature offered a promising solution to this measurement problem: the development of a novel class of expected-return proxies (ERPs), collectively known as the implied cost of equity capital (ICC).
Book Synopsis Estimating the Cost of Equity Capital for Insurance Firms with Multi-Period Asset Pricing Models by : Alexander Barinov
Download or read book Estimating the Cost of Equity Capital for Insurance Firms with Multi-Period Asset Pricing Models written by Alexander Barinov and published by . This book was released on 2018 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Previous research on insurer cost of equity (COE) focuses on single-period asset pricing models. In reality, however, investment and consumption decisions are made over multiple periods, exposing firms to time-varying risks related to economic cycles and market volatility. We extend the literature by examining two multi-period models--the conditional CAPM (CCAPM) and the intertemporal CAPM (ICAPM). Using 29 years of data, we find that macroeconomic factors significantly influence and explain insurer stock returns. Insurers have counter-cyclical beta implying that their market risk increases during recessions. Further, insurers are sensitive to volatility risk (the risk of losses when volatility goes up), but not to insurance-specific risks, financial industry risks, liquidity risk, or co-skewness after controlling for other economy-wide factors.
