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- Cost_of_equity abstract "In finance, the cost of equity is the return (often expressed as a rate of return) a firm theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake by investing their capital. Firms need to acquire capital from others to operate and grow. Individuals and organizations who are willing to provide their funds to others naturally desire to be rewarded. Just as landlords seek rents on their property, capital providers seek returns on their funds, which must be commensurate with the risk undertaken.Firms obtain capital from two kinds of sources: lenders and equity investors. From the perspective of capital providers, lenders seek to be rewarded with interest and equity investors seek dividends and/or appreciation in the value of their investment (capital gain). From a firm's perspective, they must pay for the capital it obtains from others, which is called its cost of capital. Such costs are separated into a firm's cost of debt and cost of equity and attributed to these two kinds of capital sources.While a firm's present cost of debt is relatively easy to determine from observation of interest rates in the capital markets, its current cost of equity is unobservable and must be estimated. Finance theory and practice offers various models for estimating a particular firm's cost of equity such as the Capital Asset Pricing Model, or CAPM. Another method is derived from the Gordon Model, which is a discounted cash flow model based on dividend returns and eventual capital return from the sale of the investment. Another simple method is the Bond Yield Plus Risk Premium (BYPRP), where a subjective risk premium is added to the firm's long-term debt interest rate. Moreover, a firm's overall cost of capital, which consists of the two types of capital costs, can be estimated using the weighted average cost of capital model. According to finance theory, as a firm's risk increases/decreases, its cost of capital increases/decreases. This theory is linked to observation of human behavior and logic: capital providers expect reward for offering their funds to others. Such providers are usually rational and prudent preferring safety over risk. They naturally require an extra reward as an incentive to place their capital in a riskier investment instead of a safer one. If an investment's risk increases, capital providers demand higher returns or they will place their capital elsewhere.Knowing a firm's cost of capital is needed in order to make better decisions. Managers make capital budgeting decisions while capital providers make decisions about lending and investment. Such decisions can be made after quantitative analysis that typically uses a firm's cost of capital as a model input.".
- Cost_of_equity wikiPageID "2943432".
- Cost_of_equity wikiPageLength "3724".
- Cost_of_equity wikiPageOutDegree "20".
- Cost_of_equity wikiPageRevisionID "633713903".
- Cost_of_equity wikiPageWikiLink Capital_Asset_Pricing_Model.
- Cost_of_equity wikiPageWikiLink Capital_asset_pricing_model.
- Cost_of_equity wikiPageWikiLink Capital_budgeting.
- Cost_of_equity wikiPageWikiLink Capital_gain.
- Cost_of_equity wikiPageWikiLink Category:Business_economics.
- Cost_of_equity wikiPageWikiLink Cost_of_capital.
- Cost_of_equity wikiPageWikiLink Cost_of_debt.
- Cost_of_equity wikiPageWikiLink Discounted_cash_flow.
- Cost_of_equity wikiPageWikiLink Dividend.
- Cost_of_equity wikiPageWikiLink Dividend_discount_model.
- Cost_of_equity wikiPageWikiLink Dividends.
- Cost_of_equity wikiPageWikiLink Finance.
- Cost_of_equity wikiPageWikiLink Gordon_Model.
- Cost_of_equity wikiPageWikiLink Interest.
- Cost_of_equity wikiPageWikiLink Investment.
- Cost_of_equity wikiPageWikiLink Lending.
- Cost_of_equity wikiPageWikiLink Loan.
- Cost_of_equity wikiPageWikiLink Rate_of_return.
- Cost_of_equity wikiPageWikiLink Return_on_equity.
- Cost_of_equity wikiPageWikiLink Risk.
- Cost_of_equity wikiPageWikiLink Shareholder.
- Cost_of_equity wikiPageWikiLink Weighted_average_cost_of_capital.
- Cost_of_equity wikiPageWikiLinkText "Cost of equity".
- Cost_of_equity wikiPageWikiLinkText "cost of equity".
- Cost_of_equity hasPhotoCollection Cost_of_equity.
- Cost_of_equity wikiPageUsesTemplate Template:Cite_journal.
- Cost_of_equity wikiPageUsesTemplate Template:Finance-stub.
- Cost_of_equity subject Category:Business_economics.
- Cost_of_equity hypernym Return.
- Cost_of_equity type MusicalWork.
- Cost_of_equity comment "In finance, the cost of equity is the return (often expressed as a rate of return) a firm theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake by investing their capital. Firms need to acquire capital from others to operate and grow. Individuals and organizations who are willing to provide their funds to others naturally desire to be rewarded.".
- Cost_of_equity label "Cost of equity".
- Cost_of_equity sameAs تكلفة_حقوق_الملكية.
- Cost_of_equity sameAs Costo_del_capitale_proprio.
- Cost_of_equity sameAs m.08f8ls.
- Cost_of_equity sameAs Q3695774.
- Cost_of_equity sameAs Q3695774.
- Cost_of_equity wasDerivedFrom Cost_of_equity?oldid=633713903.
- Cost_of_equity isPrimaryTopicOf Cost_of_equity.