Estimates Of The Cost Of Capital Of Listed Companies In China And Applications

In a market economy, the company's decision-making is increasingly dependent on financial forecasting and management science. The company's cost of capital is a core concept in financial management, it provides accurate estimates for the various aspects of decision-making. Therefore, how to estimate the cost of capital and how to work better in the actual application, has concerned not only the company manager but also the professionals in finance and accounting. The thesis has traced the evolution process for cost of capital from the theoretical methods to the practical application, and given a detailed description of the estimation methods to cost of debt capital, cost of equity capital and the weighted average cost of capital. It has proposed in-depth analysis of the main points of each estimation method, the applicability of each estimation method, and the various difficulties encountered in the application, as well as the further brief discuss of the solutions to these difficulties.The key elements of the thesis are as follows:ChapterⅠis an introduction to the research background and significance, and also the research ideas and framework.ChapterⅡis the estimation and application to the cost of debt capital. From the meaning of debt capital to the estimation methods, it claims a range of issues encountered in the estimation process such as how to estimate the cost of bonds with options embedded and try to answer these questions.ChapterⅢis the estimation and application to the cost of equity capital. It has a main description of the estimat ion methods, including the capital asset pricing model, dividend discount model and bond yield adjusted model. It also sums up the difficulties in the application, advantages and disadvantages of each method, and applicability comparison of each method. Then it points out that China should choose the bond yield adjusted model. Finally the macro and micro factors affecting the cost of equity capital are listed.Chapter IV is WACC and its appl ication. From the relationship between WACC, capital structure and firm value, it analyzes how the capital structure affects WACC. Then, it concludes that the best way to estimate the weight which is a key element in the calculation formula of WACC is the target value according to the target capital structure, which also illustrates the close relationship between the capital structure and WACC. Finally it stresses that the cost of capital have played an irreplaceable role in every aspect of operations in the company.Chapter V is conclusions based on the thesis and it also points out the limitations of the thesis and the future research directions.