Risk sensitivity indicator as correction factor for cost of capital rate
AbstractCost of capital rate is a result of risk included in cost of debt rates and cost of equity rates. Generally to estimate cost of capital rates with use of CAPM conception, is used information about general risk indicator, known as beta coefficient and relations between debt and equity rates. Such approach in unmodified version, falsely gives the similar results for enterprises from the same sector and with similar levels of debt to equity relations. In paper is presented risk sensitivity indicator conception which allows to differentiate cost of capital rate between more risk sensitive businesses and less sensitive businesses.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 43399.
Date of creation: 19 Aug 2012
Date of revision: 02 Sep 2012
risk sensitivity; cost of capital; enterprise value; sensitivity indicator;
Other versions of this item:
- Grzegorz Michalski, 2012. "Risk sensitivity indicator as correction factor for cost of capital rate," EconStor Conference Papers 67534, ZBW - German National Library of Economics.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-12 (All new papers)
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