Estimating Cost Of Equity For WACC - DCF Model Insights

Please like and subscribe to my channel for more content every week. If you have any questions, please comment below.

In today’s video, we learn about calculating the cost of equity used in the weighted average cost of capital (WACC) calculation. This is part of the DCF insights series for more advanced students but it offers valuable insights about the assumptions used in the model. In my opinion, the cost of equity assumption is the most important consideration when calculating the WACC as it usually accounts for many of the externalities that exist. We will look at both the;
- Capital asset pricing model (CAPM)
- Build-up Model (BAM)

While considering additional assumptions like;
- Size risk premium
- Country risk premium
- Industry risk premium
- Company specific risk premium

Link to the country default spread and risk premium database;

http://pages.stern.nyu.edu/~adamodar/...

Link to the Ibbotson size premium resource;

http://psc.ky.gov/pscecf/2012-00221/r...

Link to the Ibbotson SBBI resource;

http://corporate.morningstar.com/ib/a...

Link to report covering build-up model (BAM);

https://corporate.morningstar.com/ib/...

Link to the Highland Global company risk premium resource;

http://csbweb01.uncw.edu/people/farin...

Link to an amazing report summarizing risk parameters by Aswath Damodaran;

http://people.stern.nyu.edu/adamodar/...

For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories.

http://seekingalpha.com/author/robert...