CAPM - Equity Cost of Capital
Let's say the share has a beta of 2 and as a result, you get a return on equity of 6%. how does this work in practice, do managers etc. ultimately align their investments to achieve this average benchmark of 6% or if they don't, how is CAPM working in a context of a fundamental analysis?
Excuse my english, I'm from India.
Not sure how you end up at a cost of equity of 6% with a Beta of 2%? For US it's something like: Rf: somewhere around 1-2% Levered beta: 2.0 MRP: 5-6% Cost of equity: 1.5% + 2*5.5% = 12.5%
Investors will use CAPM to determine WACC and then do a DCF on the listed companies. If a company is trading below it's DCF value there will be more demand for the shares, resulting in a higher share price.
the cost of capital is whatever my MD says it is
it is always 10%
Sed odio quae molestiae maxime. Accusamus sit tenetur minima laudantium et. Consequuntur temporibus occaecati vero voluptatem. Numquam at quis vitae nostrum aliquid. Quis qui in corrupti cum sit quas aut. Quia consequuntur consequatur porro rerum occaecati qui fuga.
Facere rerum odio esse rerum voluptatum provident eaque. Doloribus et iure nisi quam totam nulla. Corrupti aspernatur alias debitis ut et nobis ut unde.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...