The Cost Of Capital Book

	Figures and Tables
	Preface
Ch. 1	The Concept and Uses of the Cost of Capital	1
IV	Problems in Estimation of the Cost of Capitlal	9
Ch. 2	Theoretical Models for Estimating the Cost of Equity Capital	19
I	Model Classification	19
II	The DCF Model	21
III	The Standard Capital Asset Pricing Model	28
IV	CAPM Extensions	37
Ch. 3	Empirical Evidence on Validity of DCF Model and CAPM	50
Ch. 4	Estimation of the Cost of Equity Using the DCF Model	76
I	Estimation of the Appropriate Dividend Yield	77
II	Estimation of Proxies for Expected Growth	79
III	Empirical Studies of Relative Usefulness of Growth Proxies	86
IV	DCF Estimates Using Portfolios of Comparable Firms	95
Ch. 5	Estimation of the Cost of Equity Using the CAPM	102
I	Estimation of the Risk-Free Rate	103
II	Estimation of the Market Risk Premium	106
III	Estimation of Betas Assuming True Value is Constant	117
IV	Estimation of Betas Assuming True Value is Non-Stationary	128
V	Commercial Sources of Beta Estimates	130
Ch. 6	Arbitrage Pricing and Other Models for Estimating the Cost of Equity	144
I	Arbitrage Pricing Theory	144
II	DCF-Based Models	153
III	Ad Hoc Methods for Estimating Equity Costs	155
Ch. 7	Financing Effects and the Weighted Average Cost of Capital	167
I	Financing Effects and Adjusted Present Value	167
II	Theories of Capital Structure	169
III	Cost of Capital Approximations to APV	176
IV	Estimation of the Weighted Average Cost of Capital	180
V	Sensitivity of Present Value Estimates to Errors in K(WACC)	184
Ch. 8	Multi-Period Issues in Applications of WACC Estimates	196
I	Applicability of the Single-Period CAPM to Multi-Period Valuation	197
II	The Term Structure of Capital Costs	198
III	Certainty Equivalents and the Time Pattern of Risks	200
IV	Discounting Negative Cash Flows	202
V	Consistent Treatment of Effects of Inflation on Cash Flows and Cost of Capital	205
Ch. 9	Estimating the Cost of Capital for Non-Traded Assets	215
I	Effects of Variations in Operating Risks and Debt Capacities Across Assets	215
II	Estimation of Equity Betas for Non-Traded Assets	217
III	Direct Estimation of K(WACC) for Non-Traded Assets	225
Ch. 10	The Cost of Capital for International Investments	238
I	NPV Analysis for Non-Domestic Investments	238
II	International Parity Conditions and the Risk-Return Relationship	243
Ch. 11	Option Pricing Theory and the Cost of Capital	254
I	Options in Real and Financial Markets	254
II	The Black-Scholes Model for Option Valuation	256
III	Option Pricing and the CAPM	260
IV	Estimation of Required Returns on Warrants and Convertible Securities	263
Ch. 12	The Cost of Capital in Public Utility Regulation	272
I	Determination of Fair and Reasonable Returns and Revenue Requirements	272
II	Interaction Between the Allowed Rate of Return and the Rate Base in the Context of Inflation	274
III	Interaction Between the Allowed Rate of Return and Differences Between Invested Capital and the Rate Base	276
IV	Interaction Between Cost of Capital Estimates and the Regulatory Process	280
V	The Relationship Between Capital Structure and Cost of Capital Under Regulation	284
	Glossary of Notation and Abbreviations	293
	Author Index	299
	Subject Index	307