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Risk sensitivity indicator as correction factor for cost of capital rate

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  • Grzegorz Michalski

Abstract

Cost 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. -- Kapitalkostensatz ist ein Ergebnis der Risiko Fremdkapitalkosten Preise und Kosten des Eigenkapitals inbegriffen. Allgemein Kapitalkostensätze mit der Nutzung der CAPM Konzeption abzuschätzen, wird Informationen über allgemeine Risiko-Indikator, wie Beta-Koeffizienten und die Beziehungen zwischen Fremd-und Eigenkapital Preise bekannt sind. Ein solcher Ansatz in unveränderter Version fälschlich gibt die ähnliche Ergebnisse für die Unternehmen aus der gleichen Branche und mit ähnlichen Niveaus von Schulden in Eigenkapital Beziehungen. In Papier Risikosensitivität Indikator Konzeption, die Kapitalkostensatz zwischen risikosensitivere Unternehmen und weniger empfindlich Unternehmen differenzieren können vorgestellt. (translate.google.com)

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Bibliographic Info

Paper provided by ZBW - German National Library of Economics in its series EconStor Conference Papers with number 67534.

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Date of creation: 28 Dec 2012
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Handle: RePEc:zbw:esconf:67534

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Keywords: risk sensitivity; cost of capital; enterprise value; sensitivity indicator;

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References

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  1. Robert Parrino & Allen M. Poteshman & Michael S. Weisbach, 2002. "Measuring Investment Distortions when Risk-Averse Managers Decide Whether to Undertake Risky Projects," NBER Working Papers 8763, National Bureau of Economic Research, Inc.
  2. Tim Opler & Lee Pinkowitz & Rene Stulz & Rohan Williamson, 1997. "The Determinants and Implications of Corporate Cash Holdings," NBER Working Papers 6234, National Bureau of Economic Research, Inc.
  3. Grzegorz Michalski, 2013. "Planning Optimal From the Firm Value Creation Perspective Levels of Operating Cash Investments," Papers 1301.3824, arXiv.org.
  4. Grzegorz Michalski, 2013. "Value-Based Inventory Management," Papers 1301.3826, arXiv.org.
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  7. Michalski, Grzegorz, 2007. "Portofolio Managament Approach in Trade Credit Decision Making," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 4(3), pages 42-53, September.
  8. Kim, Chang-Soo & Mauer, David C. & Sherman, Ann E., 1998. "The Determinants of Corporate Liquidity: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(03), pages 335-359, September.
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  10. Beck, Stacie & Stockman, David R., 2005. "Money as real options in a cash-in-advance economy," Economics Letters, Elsevier, vol. 87(3), pages 337-345, June.
  11. Kim, Yong H & Atkins, Joseph C, 1978. "Evaluating Investments in Accounts Receivable: A Wealth Maximizing Framework," Journal of Finance, American Finance Association, vol. 33(2), pages 403-12, May.
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