Risk sensitivity indicator as correction factor for cost of capital rate

MPRA Paper from University Library of Munich, Germany

Abstract: Cost of capital rate is a result of risk included in cost of debt rates and cost of equity rates. Generally to estimate cost of capital rates with use of CAPM conception, is used information about general risk indicator, known as beta coefficient and relations between debt and equity rates. Such approach in unmodified version, falsely gives the similar results for enterprises from the same sector and with similar levels of debt to equity relations. In paper is presented risk sensitivity indicator conception which allows to differentiate cost of capital rate between more risk sensitive businesses and less sensitive businesses.

Keywords: risk sensitivity; cost of capital; enterprise value; sensitivity indicator (search for similar items in EconPapers)
JEL-codes: D81 G32 (search for similar items in EconPapers)
Date: 2012-08-19, Revised 2012-09-02
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Related works:
Working Paper: Risk sensitivity indicator as correction factor for cost of capital rate (2012)
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