The Cost of Capital
Intermediate Theory

A thorough exposition of the theory relating to the cost of capital.

Seth Armitage (Author)

9780521000444, Cambridge University Press

Paperback, published 17 March 2005

370 pages, 4 tables
24.7 x 17.2 x 2.6 cm, 0.73 kg

This book provides an answer to the question, 'What does the finance and economics literature say about the determination and estimation of a project's cost of capital?'. Uniquely, it reviews both the theory of asset pricing in discrete time and a range of more applied topics which relate to project valuation, including the effects of corporate and personal taxes, the international dimension, estimation of the cost of equity in practice, and the cost of capital for regulated utilities. It seeks to explain models and arguments in a way which does justice to the reasoning, whilst minimising the prior knowledge of finance and maths expected of the reader. It acts as a bridge between a general undergraduate or MBA text in finance, accounting or economics, and the modern theoretical literature on the cost of capital.

Preface
Part I. Expected Returns on Financial Assets: 1. The cost of capital under certainty
2. Allowing for uncertainty: contingent states
3. The capital asset pricing model and multifactor models
4. The consumption-based model
5. The equity risk premium
Part II. A Project's Cost of Capital: 6. Project valuation
7. Corporation tax, leverage and the weighted average cost of capital
8. Personal tax and the cost of equity: the old and the new views
9. Personal tax, leverage and multiple tax rates
10. Inflation and risk premiums
11. The international dimension
Part III. Estimating the Cost of Capital: 12. The cost of equity: inference from present value
13. The cost of equity: applying the CAPM and multifactor models
14. Estimating a project's cost of capital
15. Regulated utilities.

Subject Areas: Investment & securities [KFFM], Corporate finance [KFFH], Finance & accounting [KF], Economics [KC]