Translate the premium into an annual rate and you have the cost of equity.
GM's average annual return of 13% is respectable, but does not meet its 15% cost of equity.
The giant American bank delivered an average annual return of 37.3%, nearly four times its cost of equity.
When Apple shares became less volatile in the spring, the model would have cut the cost of equity to 16%.
Of course, if markets are illiquid, then investors may be reluctant to invest, and the cost of equity capital will rise.
None is a true bottom-line margin that relates profits to sales after deducting all costs, including the opportunity cost of equity capital.
DaimlerChrysler, conceived in 1998, ranks 14th from bottom, with an average annual return of -11%, the mirror image of its cost of equity.
According to a 2002 study by two economists at Indiana University, enforcing insider-trading laws reduced the cost of equity in the countries they looked at because investors did not demand a premium for the risk of trading with a crooked counterparty.
And yet, a recent estimate in a 2009 paper on CSR reporting and the cost of equity capital, suggests that hundreds of large US firms, comprising as much as 10% of the value of the publicly traded US market, produce CSR reports.
Modern economic theory and empirical evidence including a series of papers by one of us (Hassett) and Alan Auerbach of the University of California, Berkeley show that raising taxes on dividends at the individual level increases the cost of equity capital and lowers asset prices, harming consumers while hindering firms' ability to hire workers.
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This is in general much less dilutive than the cost of capital of venture equity.
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Once again, China and Brazil dominate the list of stocks trading at a discount to their peers, or having declined enough in the last several trading sessions to reduce the cost of acquiring equity in the company.
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The cost of insuring against bad outcomes in equity markets, at least as measured by the Chicago Board Options Exchange's VIX index of volatility, has been rising in recent days.
The same Capsugel deal today, Kravis said, would have a cost of capital near 9%, a reflection of the late-summer weakness in equity markets and window closing in the high-yield market, which moves on a hair trigger in turbulent times.
The three drivers of returns on equity in insurance, remember, are the investment yield, the cost of float and leverage.
Was Bernie's original sin misplaying the cost of carry game or writing covered options against equity positions that headed south too fast and far?
Owning a home with some equity can be a low cost source of credit.
Roughly 10m Americans are in negative equity ie, the cost of their mortgage exceeds the value of their home.
Many lenders reckon they will end up making a return on equity in the low teens, above their cost of capital.
Historically, the general partners of private equity funds just held their portfolio at cost, but last year they were forced by new accounting rules to mark their holdings to market.
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The cost looks steep in excess of 70% of the equity of the firm was surrendered to the new investors until you consider how slim the chances of survival are for a securities firm that has lost the confidence of the market.
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Boeing cut the cost of making fuselages by selling a factory in Wichita to a private-equity consortium, which drastically cut costs.
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These pieces had such high yields that they could help pay the cost of buying protection on the rest of the CDOs, even though the equity slices likely would become worthless over time.
If a buyback raises the debt-to-equity ratio, it can lower the firm's overall cost of capital (because in most countries interest payments, unlike dividends, are tax deductible).
Blue Mountain expects that valuation to converge toward replacement cost, which could carve more than 80% off the share price of the Australian equity.
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"I expect everybody will jump on the bandwagon now, " said Richard Bove, equity analyst at Rochdale Securities, who thinks that the cost to Goldman of defending lawsuits could be enormously expensive over the next few years.
The company received a minority investment offer from three private equity players, but decided not to accept it as it judged the cost of investment to be excessive for shareholders and also dilutive in nature.
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The Wall Street public pension trough feeding frenzy has, unbeknownst to taxpayers and government workers participating in these funds, cost the nation trillions and is only getting worse with the proliferation of hedge funds and private equity alternative investments.
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Indeed, there is reason to hope that the trust may be able to trim debt through profitable property sales or issuance of new equity (which would benefit existing shareholders if diminished risk and lower interest cost can more than offset the impact of additional outstanding shares).
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