Title: We cannot measure the cost of equity capital exactly
Abstract: This article argues that because all known methods of estimating the cost of equity capital require forecasts and contain measurement errors any measure of a firm's cost of equity will be an estimate. It cannot be expected that the known models will lead to exact measures. Fortunately, in situations where the firm's common stock is traded on a market, we do not need to estimate the cost of equity capital if the objective is to allow a fair return to the firm's stockholders. The article briefly reviews the conventional ways of estimating the cost of equity capital and then presents the logic and arguments for the proposed alternative. 4 references.
Publication Year: 1984
Publication Date: 1984-08-16
Language: en
Type: article
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Cited By Count: 2
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