Article | Financial Practice and Education

Best Practices in Estimating the Cost of Capital: Survey and Synthesis

by Robert Bruner, Kenneth M. Eades, Robert S. Harris and Robert F. Higgins

Abstract

This paper presents the results of a cost-of-capital survey of 27 highly regarded corporations, ten leading financial advisers, and seven best selling textbooks and trade books. The results show close alignment among all these groups on the use of common theoretical frameworks and on many aspects of estimation. We find large variation, however, for the joint choices of the risk-free rate, beta, and the equity market risk premium, as well as for the adjustment of capital costs for specific investment risk.

Keywords: Cost of Capital;

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Citation:

Bruner, Robert, Kenneth M. Eades, Robert S. Harris, and Robert F. Higgins. "Best Practices in Estimating the Cost of Capital: Survey and Synthesis." Financial Practice and Education 8, no. 1 (Spring–Summer 1998): 13–28.

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Robert F. Higgins
Senior Lecturer of Business Administration
Entrepreneurial Management

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