The Cost of Equity Capital—a Comment |
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Authors: | J R HEMSTED |
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Institution: | Assistant Investment Manager, Norwich Union Insurance Group |
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Abstract: | An algebraic relationship is developed linking the expected long-term yield to an investor with the company's expected internal rate of return on its equity assets. Assuming that the market normally ranks shares by expected yield, allowing where necessary for a risk premium, it is shown that the cost of equity capital must be the company's expected internal rate of return. |
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