Premium
The Cost of Equity Capital—a Comment
Author(s) -
HEMSTED J. R.
Publication year - 1974
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1974.tb00875.x
Subject(s) - internal rate of return , cost of capital , equity (law) , economics , return on capital , rate of return , yield (engineering) , cost of equity , time weighted return , expected return , equity capital markets , equity ratio , financial economics , return on equity , equity risk , weighted average cost of capital , monetary economics , business , finance , microeconomics , investment performance , financial capital , private equity , capital formation , profitability index , production (economics) , return on investment , materials science , law , portfolio , profit (economics) , political science , metallurgy
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.