A Comprehensive Overview of Approaches to Determining the Cost of Equity in Financial Research

Document Type : Review Paper

Authors

1 MSc Student in Accounting, Islamic Azad University, Shiraz, Iran

2 MSc Student in Financial Management, Islamic Azad University, Lahijan, Iran

Abstract

In financial literature, cost of equity’s capital refer to the expenditures of acquiring funds to the company. From investor point of view, it is a return that expected to gain from each share in the portfolio. Although cost of equity is a criterion which cannot observe directly, so there is not global and reliable model for explaining it. In the present study, Gordon Growth Model, Abnormal Earnings Growth and Residual Income Valuation Model, are discussed in detail. Findings show that researchers have used the Gordon Growth Mode in order to measure and calculate the cost of equity, because it is easy to understand. Therefore, the purpose of current study is the comprehensive review of different model which explaining cost of equity; these models have usage in different form of research and according to its application in investment decisions.

Keywords

Main Subjects

References

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History

  • Receive Date: 17 December 2016
  • Revise Date: 09 July 2017
  • Accept Date: 18 July 2017

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