Reference no: EM13752289

Finance managers must understand the components of the cost of capital. The focus here is on on the cost of equity capital. Since capital, or money, is a limited resource to a business, finance managers may need to raise capital to fund projects through equity. Consider equity to be common stock. The cost of common equity, as opposed to preferred stock values, is assessed based upon the Capital Asset Pricing Model (CAPM). You realize if you haven't already that how investors and finance managers use the CAPM model to measure the expected cost (those issuing equity) or return (those purchasing equity) of equity. Furthermore, you will see how a finance manager is able to evaluate the measures of risk, average returns, standard deviation, variance, covariance, and beta. Finally, you will calculate and apply these statistical measures to properly value cost of equity. These measures provide a common model to negotiate costs of capital. The statistical equations used would be transferable to most any other matters measured by statistical values.

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