Subject category:
Finance, Accounting and Control
Published by:
Harvard Business Publishing
Version: 1 October 1980
Length: 12 pages
Abstract
Demonstrates how the capital asset pricing model can be used to estimate the impact of financial leverage on the cost of equity capital. The levering and unlevering of betas are illustrated. Also presents a methodology for decomposing the cost of equity into its three components-- the risk-free rate, a premium for business, and a premium for financial risk.
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Abstract
Demonstrates how the capital asset pricing model can be used to estimate the impact of financial leverage on the cost of equity capital. The levering and unlevering of betas are illustrated. Also presents a methodology for decomposing the cost of equity into its three components-- the risk-free rate, a premium for business, and a premium for financial risk.