Hello.
When performing an DCF analysis with a WACC in the terminal value calculation, we come across the term cost of equity (COE). I understand that COE can refer to two concepts:
- For companies: The required rate of return a company sets for new investments
- For investors: The required rate of return for investing in a company
In calculating a terminal multiple in a DCF I assume it's the first concept one is referring to, as the WACC (which includes COE) often is found in the company's own annual report. Is this a correct assumption? EDIT: I mean, if not, if it's the second concept, the company must have some way of known at what rate it's investors require for staying invested in the company, and how would they determine this rate?
I understand that the CEO is an opportunity risk, which one uses to compare two investments with different risk profiles. But in both cases, how is CEO calculated? How does companies and investors go about determining the CEO?
There's a lot of information online regarding CEO, but not much information on how to translate the concept of COE to an actual percentage number.
Submitted October 09, 2022 at 01:10AM by tangleofcode https://ift.tt/naFYLeU
