FINANCE

Asset Pricing & Implied Cost of Capital

Introduction2

Aims and Objectives3

Research Questions3

Significance of the study…………………………………………………………………..4

Literature Review4

Methodology6

Data Analysis Method6

Time Scale8

Conclusion ……………………………………………………………………………… 8



References9

Asset Pricing & Implied Cost of Capital

Introduction

For more than last century, various scholars have described the idea of analyst-based substitute to conventional methods of calculating approximate cost of capital and asset valuation of company. On the other hand, various scholars have proposed the idea of (ICC) implied cost of capital as an affective substitute of calculating company's expected return (Esterer & Schroder, 2012, pp. 5-35). The (ICC) implied cost of capital has also been known as the (IRR) internal rate of return that compare the prices of share with the forecasted discounted cash flows of the company.

Implied cost of capital since its inception has been affectively used to examine the level of market risk premium, examine the importance of asset pricing and plays an important role in decision-making process of the company (Barber et al, 2010, pp. 533-553). In addition to ICC (implied cost of capital), another method (V/P) value-to-price ration has also been introduced as another substitute of traditional asset calculation method.

This measure of essential value of a firm and its market capitalization value has been introduced to forecast probable income that company might earn from individual assets, or from the market (Botosan et al, 2011, pp.1085-1122). Implied cost of capital framework enables organization with well-designed structure to identify the effectiveness of forecasted value of company's assets across national and international markets. Within the available scope that these assumption include various important information about the organization essential worth, and in this grounds ICC might have provided an added edge in determining the returns of stock over cross sectional boundaries (Claus & Jacob, 2001, pp. 1629-1666). Thus, this research paper with the help of implied cost of capital will look to identify the worth of organization assets as forecasted in the international market.

Aims and Objectives

The main aims and objectives of this research proposal are listed below

To analyze the concept of implied cost of capital

To analyze the techniques of using implied cost of capital in calculating the forecasted value of organization assets price

To compare the benefits of implied cost of capital over traditional method of calculating assets value

Research Questions

Researcher has constructed the following question, in order to accomplish the aims and objective of his research.

RQ1: What is the basic concept and idea behind introducing implied cost of capital technique

RQ2: What is the framework of using implied cost of capital technique in calculation of firms assets value

RQ3: What is the benefit of using ICC than other traditional methods of calculating firms assets value

Significance of the Study

The study exhibit that forecaster or market analyst can play an important role in predicting the range of stock profits crosswise international capital market. Forecaster prediction is normally based on two well-known risk measurement tools like implied cost of capital (ICC) and value-to -price (VP). The prime objective of the researcher is to describe and explain the wide range of stock returns at ...