Estimating the Cost of Capital for Operating Assets

Authors

  • Timothy Vines Louisiana State University Shreveport
  • ChengHo Hsieh Louisiana State University Shreveport

Abstract

A firm’s total assets include non-operating and operating components. In the conventional value-based management and economic value-added models, the value created comes from the firm’s operating assets; therefore, the weighted average cost of capital in the models should also be based on the operating assets instead of the total assets. A method to find this cost of capital is presented. This modification also has implications for other areas in the study of financial management, such as capital budgeting and capital structure.

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Published

2019-12-31

How to Cite

Vines, Timothy, and ChengHo Hsieh. 2019. “Estimating the Cost of Capital for Operating Assets”. Journal of Finance Issues 18 (2):51-58. https://jfi.aof-mbaa.org/index.php/jfi/article/view/2226.

Issue

Section

Original Article