Standrt Strategy

THE SEARCH FOR VALUE (Measuring the woo of equity capital) SIA: The hunt club for cheer 1 Aims This topic aims to: question the major issues link to the selected models of estimating the cost of equity capital, comp atomic number 18 the doing of those models, discuss how to rank a division or a private company. SIA: The search for apprise 2 Value of a firm revoke: V0 = ? Ct t t =1(1 + r ) V0 = grade of a firm Ct = expected cash flow r = required rate of return How to estimate the value of r? By using an asset pricing model ! SIA: The calculate for Value 3 1  plus Pricing precedents SIA: The front for Value 4 The Capital Asset Pricing Model The CAPM: E(Ri - Rf) = Rf + ? (E(RM) Rf) It suggests Expected rate of return is directly and linearly associate to its assay It concentrates on encounter and expected return. different aspects (size, asset values, industry) are ignored It places particular emphasis on systematic guess Total risk = market risk + unique risk SIA: The Search for Value 5 The Components of the CAPM The CAPM: E(Ri - Rf) = Rf + ? (E(RM) Rf) ?: theme firm and market returns series for a period. commonly OLS retrogression is used. The Market recidivate: Usually historical value of a broad market index is used.

The Risk-free enumerate: figure is to use Treasury bill rate. SIA: The Search for Value 6 2 Issues in Implementing the CAPM-1 Difficulties in estimating the market risk premium (E(RM) Rf): It is not directly observable It varies everywhere metre What is an appropriate eu phony of market return? What is an appropri! ate measuring stick of risk-free rate? SIA: The Search for Value 7 Issues in Implementing the CAPM-2 Difficulties in estimating ? : may vary overtime because of structural pitch Other practical issues (choices related to): Market index Return interval Number of observations Alternative estimation and margin methods SIA: The Search for Value 8...If you want to get a full essay, guild it on our website: BestEssayCheap.com

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