Andrew Stolz

AUGUST 5, 2020

If an investor moves money from the risk-free asset into the stock market, they should expect to earn a return in excess of the risk-free rate, what is called an equity risk premium. These risks can be reduced through the diversification of a portfolio. How Do You Calculate the Capital Asset Pricing Model?

Risk-free Rate 52

Risk-free Rate Beta Weighted Average Cost of Capital Risk Premium 52

Valutico

FEBRUARY 27, 2024

In DCF analysis, the Weighted Average Cost of Capital (WACC), representing the average return required by all stakeholders, is commonly used as the discount rate. The discount rate must be carefully chosen to reflect unique company risks and characteristics, and also changes in economic conditions.

Discounted Cash Flow 52

Discounted Cash Flow Risk Premium Risk-free Rate Beta 52

Equidam

APRIL 26, 2025

Discount Rate (Cost of Equity): The rate used to discount future cash flows reflects the riskiness of the investment. We calculate the cost of equity using the Capital Asset Pricing Model (CAPM). This incorporates the risk-free rate, a market risk premium specific to the company’s country, and Beta ($beta$).

Discounted Cash Flow 59

Discounted Cash Flow Terminal Value Book Value Beta 59

Andrew Stolz

MARCH 20, 2020

Weight average cost of capital (WACC) is a calculation of a firm’s cost of capital which includes all sources of capital such as common stocks, preferred stocks, and bonds. A firm uses a mix of equity and debt to minimize the cost of capital. The formula is expressed in the following.

Beta 52

Beta Capital Structure Risk-free Rate Weighted Average Cost of Capital 52

Valutico

OCTOBER 20, 2022

d is the discount rate (which is usually the weighted average cost of capital (WACC), r in our previous example). Ce = Cost of Equity. Rf = Risk-free Rate. Rm – Rf) = Equity Market Risk Premium. Cp = Cost of Equity Premium. And you need three numbers to do this. .

Discounted Cash Flow 52

Discounted Cash Flow Terminal Value Weighted Average Cost of Capital Net Present Value 52

Equidam

APRIL 22, 2025

Discount Rates / Risk Premiums: The discount rate used in DCF analysis (often the WACC) incorporates elements sensitive to market conditions. [21] 21] [22] [24] [27] The cost of equity component includes the market risk premium the excess return investors expect for investing in the broader market over a risk-free rate.

Discounted Cash Flow 52

Discounted Cash Flow Marketability Risk Premium Start-ups 52