Here is the synopsis of our sample research paper on Calculating Cost of Equity using CAPM and the Dividend Discount Model. Have the paper e-mailed to you 24/7/365.
Essay / Research Paper Abstract
This 5 page paper looks at the way cost of equity can be calculated. Using Target as an example the calculation is explained and demonstrated, with the firms cost of equity then compared to WalMart and Sears. The paper then discusses the way that the dividend discount model may be used to calculate cost of equity. The bibliography cites 6 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEtgtCAPMDDM.doc
Buy This Term Paper »
Unformatted sample text from the term paper:
number of different models that can be used. CAPM has been wordily used, and although not universally agreed upon for it can by which to vas a tool by used
as a framework to asses potential costs of equity as well as a tool by which to compare different firms costs of equity. As the cost of equity is effectuality
the return that an investor will gain from owning a share, this calculation can also be used to assess the expected rate of return that an investor may require for
a particular share. Looking at Target the cost of equity can be calculated and then compared with WalMart and Kmart, which is part f the Sears Group.
The calculation for CAPM is Rj = Rf + (Rm x Bj) where Rj is the rate of return that is expected on any single
stock (the cost of equity), Rf is the risk free investment rate, Rm is the additional equity risk premium and Bj is the beta.
The first stage of the calculation is to assess the inputs needed for the calculation to take place. The risk free rate is assessed as being the rate at
which it is possible to make an investment in a risk free environment. Traditionally the costs of government bonds are used to determine the risk free rate. There is a
degree of subjectivity here, as there are different bonds, here the one year rate will be used. The current risk free rat is therefore 0.18% (Federal Reserve, 2011).
The market risk premium is deemed to be 7%, so the remaining input needed in order to calculate the CAPM is the beta. The
...