Work detail

The Cost of Capital

Author: Mgr. Kateřina Šístková
Year: 2003 - summer
Leaders: Ing. Irena Jindřichovská CSc.
Work type: Finance and Banking
Language: Czech
Pages: 102
Awards and prizes:
Abstract: In my diploma thesis, I have focused on the issue of the cost of capital. Calculating the cost of capital plays a significant role in the financial world, not only in investment evaluation, but also in the evaluation of companies - to name but two examples from the list of potential applications. Among the currently applied methods we may discern two categories: traditional ones that use the data available on the market (CAPM), and the methods that are based on the qualified evaluation of potential risks and on risk premium estimates (disclosure score procedure). The latter method is frequently applied in countries, which offer market conditions similar to those in the Czech Republic.
The cost of capital is influenced by a number of different factors, among them the level of risk and the availability of information. Under international aspects, the cost of capital is prone to such factors as exchange rate, the political framework, and the openness of the economy.
Further, the present study introduces two specific methods> the procedure by Gebhardt, Lee, Swaminathan for the calculation of implied cost of capital, and the King / Fullerton method that draws upon microeconomic theory. In the Czech Republic, the prevalent approach for calculating the cost of capital are so-called: alternative methods", to which belongs the disclosure score procedure in question




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