looks at how to estimate the cost of equity using the dividend valuation model (DVM) and the capital asset pricing model (CAPM), and how to evaluate the use of the DVM and the CAPM from a financial and strategic perspective. It then explores the implications regarding selection of the inputs to the DVM and CAPM and assesses the implications of using the beta measure in the CAPM

Course learning outcomes

After studying this course, you should be able to:

• select and justify a suitable risk-free rate and equity risk premium for use in determining the expected return for a share
• evaluate the different approaches to identifying a suitable equity risk premium
• use the dividend valuation model to calculate the return on a share and the return on a market
• use the return on a market to arrive at an implied equity risk premium.