The Cost of Capital: Intermediate Theory

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Cambridge University Press, Mar 17, 2005 - Business & Economics - 353 pages
This book provides an answer to the question, 'What does the finance and economics literature say about the determination and estimation of a project's cost of capital?'. Uniquely, it reviews both the theory of asset pricing in discrete time and a range of more applied topics which relate to project valuation, including the effects of corporate and personal taxes, the international dimension, estimation of the cost of equity in practice, and the cost of capital for regulated utilities. It seeks to explain models and arguments in a way which does justice to the reasoning, whilst minimising the prior knowledge of finance and maths expected of the reader. It acts as a bridge between a general undergraduate or MBA text in finance, accounting or economics, and the modern theoretical literature on the cost of capital.
 

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Contents

The cost of capital under certainty
3
contingent states
20
The capital asset pricing model and multifactor models
38
The consumptionbased model
68
The equity risk premium
87
Project valuation
123
Corporation tax leverage and the weighted average cost of capital
153
the old and the new views
181
Inflation and risk premiums
225
The international dimension
236
inference from present value
261
applying the CAPM and multifactor models
278
Estimating a projects cost of capital
300
Regulated utilities
323
References
335
Index
347

Personal tax leverage and multiple tax rates
205

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About the author (2005)

Seth Armitage is a Reader in Finance and head of the finance group at Heriot-Watt University, Edinburgh. His current and recent research centres on the financing of companies and has included work on rights issues and open offers, the role of banks in funding companies, sources of finance in developing countries and mutual financial institutions. He is the author of Syndicated Lending in Europe (1998).

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