COMPLEX MODULAR METHOD OF EVALUATION OF EQUITY CAPITAL AND ITS SOFTWARE SUPPORT
Filip REBETAK1*, Dusan KARPAC2, Viera BARTOSOVA3
1Ing.University of Zilina, Faculty of operation and economics of transport and communication, Department of economics, Univerzitna 1/8215 Zilina, Slovak Republic, filip.rebetak@fpedas.uniza.sk
2Ing.University of Zilina, Faculty of operation and economics of transport and communication, Department of economics, Univerzitna 1/8215 Zilina, Slovak Republic, dusan.karpac@fpedas.uniza.sk
3Doc.University of Zilina, Faculty of operation and economics of transport and communication, Department of economics, Univerzitna 1/8215 Zilina, Slovak Republic, viera.bartosova@fpedas.uniza.sk
*Corresponding Author
Abstract
The cost of capital determines how a company can raise money through stock issue, borrowing, or a mix of the two. The cost of equity is determined by investors' expectations. Problems occur when we want to find out how much equity capital actually costs. European way of detecting costs of equity was based on estimates, relying on Anglo-Saxon countries for concepts based on market theories. In the cost survey on equity we must first determine the impact of the value being measured and the discount rate. In the case of market value, it is necessary to rely on the discount rate for capital market data. In the survey the total cost of equity must also take into account the nature of investors. Publicly traded companies have the possibility of diversification, therefore the discount rate includes only systematic risk. In other companies, they don´t have this option, the specific risk is taken into account in addition to systemic risk. The problem with the market valuation is the calculation of the risk premium that must be at least partly by market data. To demonstrate how to calculate and the company's cost of capital, especially the cost of equity, we will use in this article a complex methodological approach based on the modular concept of the authors Garbett and Hill, as well as the M&M model.
Keywords: modular method, risk premium, asset pricing model, equity costs
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