Marriott Coproration CASE Analysis Free Essay, Term Paper and Book Report
Q.1 How will you estimate the cost of equity of an unlisted company having publicly traded comparable companies?
The Capital Asset Pricing Model (CAPM) is a standard approach to estimating the cost of equity capital and is defined as follows parameters:
Rs - Rf = £] (Rm - Rf) where
_ Rs ¡V Represents return by investing in a specific stock
_ Rf ¡V Represents returns by investing in a risk-free asset. G-Secs issued by RBI can be taken as a proxy for the risk free return.
_ Rm value ¡V Represents the returns from the Market. Any Stock Exchange Index such as NIFTY or BSE SENSEX can be approximated as a proxy for this.
_ Beta (£]) value ¡V Beta represents the systematic risk of the stock. The beta of an investment is the standardized measure of non diversifiable risk that it adds to the investment portfolio.
Evidently, Rf and Rm remains the same across stocks - and only £] varies.
£] value for unlisted companies cannot be determined by simple linear regression of the historical data. The most widely used approach for estimating beta in such cases is to use t......
Word Count: 966
Page Count: 3.8 (250 words a page / double spaced)
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