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Risk sensitivity indicator as correction factor for cost of capital rate

  • Grzegorz Michalski

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.

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File URL: http://econstor.eu/bitstream/10419/67534/1/Risk%20sensitivity%20indicator%20as%20correction%20factor%20for%20cost%20of%20capital%20rate.pdf
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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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  1. Robert Parrino & Allen M. Poteshman & Michael S. Weisbach, 2005. "Measuring Investment Distortions when Risk-Averse Managers Decide Whether to Undertake Risky Projects," Financial Management, Financial Management Association, vol. 34(1), Spring.
  2. Grzegorz Michalski, 2013. "Planning Optimal From the Firm Value Creation Perspective Levels of Operating Cash Investments," Papers 1301.3824, arXiv.org.
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  7. Bougheas, Spiros & Mateut, Simona & Mizen, Paul, 2009. "Corporate trade credit and inventories: New evidence of a trade-off from accounts payable and receivable," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 300-307, February.
  8. Michalski, Grzegorz, 2008. "Value-Based Inventory Management," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 82-90.
  9. Grzegorz Michalski, 2013. "Portfolio Management Approach in Trade Credit Decision Making," Papers 1301.3823, arXiv.org.
  10. 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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