How do you measure the cost of capital in a company with no dividends?

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Answer 1

Answer #1

Capital Assets Pricing Method (CAPM) method can be used to measure cost of capital if the company don't have dividend.

$CostofCapital = R + B(M - R)$

Whereas

R_f=Risk Free Rate of Return (the return which can be earn in investing any safe place like Bank, Govt Bond etc.)

B= Beta (Statistical measure)

M= Market Rate of Return (Return rate which an investor is expecting from company)

Risk Premium (M-R_{f) =} The Premium that an investor is demanding to taking Risk.

so this is a method by using this formula cost of capital can be measured.

I hope this clear your doubt.

Feel free to comment if you still have any query or need something else. I'll help asap.

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Answer 2

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