English, Article edition: Estimating the cost of capital: considerations for small business Ralph Palliam

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Bookmark: http://trove.nla.gov.au/version/8728
Physical Description
  • article
Language
  • English

Edition details

Title
  • Estimating the cost of capital: considerations for small business
Author
  • Ralph Palliam
Physical Description
  • article
Notes
  • Purpose – For publicly traded firms, calculating the cost of capital is predicated typically on information from the financial markets. Small businesses do not have the necessary market-based information. As an alternative to traditional proxy approaches, this paper argues for a multi-criteria model to determine an appropriate equity risk premium, and thereby, a cost of capital. Design/​methodology/​approach – The study proposes a multi-criteria model – an analytical hierarchy process (AHP) – to determine the cost of capital for small businesses. Findings – Since the three proxy methods are shown to have numerous shortcomings, the use of the AHP model is clearly a method to determine the equity risk premium and the cost of capital for small businesses. Research limitations/​implications – The model requires small business managers to identify all information sources for the required input data. Originality/​value – The article offers practical help to lenders and small businesses wishing to invest in new capital projects.
  • Analytical hierarchy process, Capital budgeting, Risk management
  • RePEc:eme:jrfpps:v:6:y:2005:i:4:p:335-340
Language
  • English
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