ISSUE 3– DATE 19 JULY 2015
1. INTRODUCTION AND OBJECTIVE
This article attempts to discuss on some basic principles that should be considered when determining the cost of equity, which is the discount rate used when using the FCFE method (discussed in Topic 2). There are a few methods that can be used to determine the cost of equity, and this article shall attempt to discuss the potential pros and cons of the various methods.
|Free Cash Flow to Equity (FCFE)||
FCFE derives the equity value attributable to the equity project sponsors.
The Internal Rate of Return (IRR), as determined using the net cash flow from FCFE is known as the equity IRR.
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Chartered Financial Analyst
Global Association of Risk Professionals (GARP)