search query: @indexterm CAPITAL COSTS / total: 211
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| Author: | Hsia, C.-C. |
| Title: | Estimating a firm's cost of a capital: An option pricing approach |
| Journal: | Journal of Business Finance and Accounting
1990 : JAN, VOL. 18:2, p.281-287 |
| Index terms: | CAPITAL COSTS PRICING DIVIDEND POLICY FINANCIAL MODELS DEBT SERVICE RATIO |
| Language: | eng |
| Abstract: | The major problems associated with using the Black and Scholes option pricing model to estimate a firm's cost of capital were addressed. The problems associated with estimating the expiry date and exercise price were resolved. The argument of dividend policy irrelevance was invoked to finesse the problem associated with the effect of dividend payments on the value of the firm's equity. It was shown that the instantaneous standard deviation can be inferred endogenously from the model. The firm's cost of capital was estimated from the model with four observable parameters: the aggregate debt service charges, the market values of debt and equity, and the riskless rate of interest. |
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