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| Author: | Jagannathan, R. Meier, I. |
| Title: | Do we need CAPM for capital budgeting? |
| Journal: | Financial Management
2002 : WINTER, VOL. 31:4, p. 55-77 |
| Index terms: | Capital asset pricing Capital budgeting Capital costs Risk premium USA |
| Language: | eng |
| Abstract: | A key input to the capital budgeting process is the cost of capital. Financial managers most often use the CAPM to estimate the cost of capital for which they need to know the market risk premium. Textbooks advocate using the historical value for the US equity premium as the market risk premium. The CAPM as a model has been seriously challenged in the academic literature. If business finance courses have been teaching the use of the wrong model along with wrong inputs for 20 years, why has no one complained? The authors of this article provide an answer to this puzzle. |
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