Still Many Ways to Skin a Capital Cost

Harvard Business Review

knew that firms were making heavy use of the capital asset pricing model (CAPM) to size up growth opportunities, but that the model was only as good as its inputs. But that article was written a decade ago, and still the CAPM rules — and as for how to come up with the crucial inputs to it, well, practice remains all over the map. Did it surprise him to find that there was so little consensus on the best way to solve the problem of assigning a cost to capital?

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Why Sit on All that Cash? Firms Uncertain on Cost of Capital

Harvard Business Review

There was little consensus about cost of capital practices; instead, respondents typically deployed a plurality of techniques. In estimating the cost of equity, nearly nine out of ten organizations use the capital asset pricing model (CAPM), which calculates the cost of equity using a risk-free rate, beta factor, and a market risk premium, each of which introduces significant variability. Budgeting Finance Strategic planning CAPM