Concept explainers
Cost of capital:
Cost of capital can be defined as the
To calculate the cost of equity from CAPM, the risk-free rate, beta, and market risk premium is required. Beta and market risk premium are difficult to find. Moreover, they are based on certain assumptions. It can be calculated by the formula given below.
To identify:
The equity cost of capital of a total equity financed firm.
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Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
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