An Investigation of UK Companies Practices in the Determination,Interpretation and Usage of Cost of Capital

Abstract

There has been extensive discussion regarding the influence of the cost of capital on the value and investment decisions of a firm.

The important role thought to be played by the cost of capital has resulted in considerable academic debate as to how the cost of capital should be calculated.

This study was designed to enhance the debate by an investigation into how firms, derive, interpret and use the cost of capital in practice.

The study adopted a survey approach to obtain information from large UK companies. Seventy three UK companies gave detailed responses revealing interesting issues for both academics and practitioners.

Keywords

Cost of capital capital asset pricing model risk premium risk free rate project risk

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