Question:

How do you calculate cost of equity?

Answer hidden.

Answer:

You calculate cost of equity using the Capital Asset Pricing Model (CAPM)

CAPM:
Cost of equity = risk-free rate + ( Beta * Equity Risk Premium )

The risk-free rate represents the yield on a 10-year or 20-year US Treasury bond.

Beta is calculated based on the “riskiness” of Comparable Companies.

The Equity Risk Premium is the % by which stocks are expected to out-perform “risk-less” assets.

Question:

How do you calculate cost of equity?

Answer:

Other

DCF

How do you calculate beta?

How do you calculate WACC?

What is beta?

Walk me through how to get from Revenue to Unlevered Free Cash Flow in your DCF projections

What happens if you use Levered Free Cash Flow instead of Unlevered Free Cash Flow in your DCF?

Would you expect the cost of equity to be higher for a $1 billion or $100 million market cap company?

Which company would we expect to have a higher beta, an industrials company or an internet company?

What happens to WACC as you increase leverage?

Walk me through a DCF

Why do you usually project out 5-10 years in a DCF?

Would you expect the WACC to be higher for a $1 billion or $100 million market cap company?

What is the mid-year convention and why would you use it in a DCF?

How do you select the appropriate exit multiple when calculating terminal value?

How do you determine the discount rate in a DCF?

How do you calculate WACC for a private company?

How do you calculate terminal value?

What are the formulas for un-levering and levering Beta?

What is a potential issue with basing terminal multiples on current public company multiples?

Sign up for our mailing list