The Corporate Cost of Capital and the Return on Corporate Investment
AbstractWe estimate the internal rates of return earned by nonfinancial firms on (i) the initial market values of their securities and (ii) the cost of their investments. The return on value is an estimate of the overall corporate cost of capital. The estimate of the real cost of capital for 1950-96 is 5.95 percent. The real return on cost is larger, 7.38 percent, so on average corporate investment seems to be profitable. A by-product of calculating these returns is information about the history of corporate earnings, investment, and financing decisions that is perhaps more interesting than the returns. Copyright The American Finance Association 1999.
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Bibliographic InfoArticle provided by American Finance Association in its journal The Journal of Finance.
Volume (Year): 54 (1999)
Issue (Month): 6 (December)
Other versions of this item:
- Eugene F. Fama & Kenneth R. French, . "The Corporate Cost of Capital and the Return on Corporate Investment," CRSP working papers 355, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Eugene F. Fama & Kenneth R. French, . "The Corporate Cost of Capital and the Return on Corporate Investment," CRSP working papers 469, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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