Group Project
Cost of Equity Capital
Project Overview and Requirements: In the light of your study, you are required to estimate the equity cost of capital for selected 6 stocks listed on the US stock exchanges in at least 3 different industries according to your preference as shown in “companies list” excel file as follows:
- Using the Capital Asset Pricing Model (CAPM)
1.1 Use Yahoo Finance to download the monthly data – over any successive 5 years in the last 10 years – for the close price for the previously elected stocks, as shown in the “manual” word file provided.
1.2 Use Yahoo Finance to download the monthly data – over the successive 5 years selected in part 1.1 – for the close price for S&P (Standard &Poor) stock market index.
1.3 You can access data on risk-free rate of return using https://www.statista.com/statistics/698047/yield-on-10y-us-treasury-bond/
1.4 Using the data downloaded in Parts 1.1&1.2, compute the average return for each of the 6 stocks and market index for the entire period using excel file as shown in the excel file provided.
1.5 Compute the cost of equity using CAPM for each of the 6 stocks as shown in the excel file.
- Using Discounted Dividend Growth (DDM) model
2.1 Download the annual dividend per share (DPS) – over any successive 5 years in the last 10 years – for your selected 6 stocks (hint: the DPS can be obtained from the company’s annual reports, which are available in the company’s websites or Yahoo finance). If any of the previously selected stocks do not pay dividend, you can use any other stocks included in the list.
2.2 Using the data obtained in 2.1, estimate the company’s dividend growth rate (g) over the selected history.
2.3 Obtain the actual share price- that should coincide with the timing point of D1. For example, if the most recent dividend used was in 2011, you should use the price in 2011).
2.4 Use the constant growth model (or zero growth model if dividends are fixed over time) to find the equity cost of capital for the selected firm.
- Comment on the difference in the cost of equity across the different industries