¶ … Popular Cost of Equity Models: Problems and Potentials in Current Theory and Practice
It is important for any publicly traded business organization to understand and accurately estimate its cost of equity capital, in order to make effective capital-raising resource allocation decisions. There are several models for determining a supposedly accurate valuation for the current cost of equity capital for a given firm, however each of these models is imperfect in its approach and its ultimate assessment. The following pages provide an overview of three popular models for providing this valuation, assessing the models base don ease of use, accuracy of the prediction, and the degree to which the assumptions made or implied by the model are reflective of reality and actual operational capabilities. A final recommendation for a particular model is made following this assessment.
Ease of Use
One of the most straightforward methods for estimating the cost of equity capital, or the rate of return that investors require, is the dividend growth model. By measuring the present value of all future dividend payments to an investor on one share of company stock, the value of the stock to the investor can be determined, according to this model (Pages.stern.nyu.edu, n.d.). As dividend payments are the only true cash flow investors receive from stock ownership, this valuation model takes the simple and direct approach of measuring the present value of these payments, and is very easy to use and apply (Pages.stern.nyu.edu, n.d.).
The capital asset pricing model is slightly more complex than the dividend growth model of cost of equity capital estimation, but is still relatively straightforward. Instead of calculating the present value of future expected dividends or the explicit cash flow investors receive, this model examines measures of risk based on current trends in the market to determine how the value of a stock -- the share price, that is -- might change (Investopedia, 2012). Establishing a beta coefficient that stands as a measure of how closely the stock price correlates with market trends allows for the projected change in stock price based on...
Finance The FCF-based valuation model is based on the following formula: EBIT (1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure Investopedia, 2012) is the free cash flow each year, C0 is the original cash outlay, and r is the discount rate. The free cash flows in this type of calculation are only those cash flows that are incremental to the investment decision. Thus, they do not include
Cohousing: A Model for Australia The roots of cohousing can be traced in Denmark in the early 1960s, expanding independently and simultaneously in Holland and Sweden where it grew into an established housing model. This term is a direct translation of a Dutch word meaning living together. In the model of cohousing, residents of a community rent or own their own homes while at the same time, share the ownership of
Brand Equity and Customer Purchasing Behavior Taking into account the numerous modifications witnessed in the marketing milieu- viz. The accessibility to plethora of knowledge through various electronic devices, the emergence of modern methods of buying, the ability of the companies to use technology to target consumer more specifically, getting a feel of customer tendencies is still more difficult. Purchasing activities is the sequence of choice and actions of individuals occupied
The deal was immediately criticized as anti-competitive by William Kennard, the chairman of the Federal Communications Commission, and by the Communications Workers of America, which represents some workers at both of the merged companies. But neither government regulators nor union bureaucrats will have the slightest impact on the latest merger. They have neither the power nor the desire to oppose the plans of the giant telecommunications monopolies. More substantial opposition
Frame the Problems/Issues into a Decision Question: frame the major issues and/or problems around a key goal or objective, differentiating the long from the short-run. What is the best course of action for this case in order to achieve lower blood prices while spurring economic competition in the Carolina's? In the long run, all health care organizations want to lower the overall cost of blood operations. Economically, the cost of these operations
2009 2008 ART 8.54 8.84 ACP 42.74 41.27 Iturnover 15.13 14.23 Inventory Age 24.12 25.65 Comments: Ford shows unfavorable activity ratios, which is indicative of the fact that the company is using its assets efficiently to meet financial requirements. All measures, except ART improved over time (from 2008 to 2009). 2009 2008 Debt/Equity 2.04 1.62 Debt/Assets 0.40 0.36 TIE -2.35 2.25 Comments: Ford uses debt heavily to finance the growth of the company. Overall the company is servicing the debt well and is stable over time, even though the loss in 2009 has affected the capital
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