REVISITING "DIVIDEND YIELD PLUS GROWTH" AND ITS APPLICATION

In this paper we extend Thompson's [17] work using time series models within the discounted cash flow framework to estimate the cost of equity capita] for a firm. In particular we do the following: First, we prove the existence and uniqueness of a solution for the cost of equity capital. Second...

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Bibliographic Details
Published inThe Engineering economist Vol. 41; no. 2; pp. 123 - 147
Main Authors THOMPSON, HOWARD E., WONG, WING-KEUNG
Format Journal Article
LanguageEnglish
Published Norcross Taylor & Francis Group 1996
Taylor & Francis Inc
Subjects
Capital budgeting
Cost estimates
Discounted cash flow
Dividends
Economic models
Electric power
Electric utilities
Equity capital
Estimating techniques
Forecasting
Methods
Statistical analysis
Studies
Time series
United States > US
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Summary:In this paper we extend Thompson's [17] work using time series models within the discounted cash flow framework to estimate the cost of equity capita] for a firm. In particular we do the following: First, we prove the existence and uniqueness of a solution for the cost of equity capital. Secondly, we verify that the cost of equity function is continuously differentiable and derive the formula for its reliability. Formulas for both the cost and its reliability are in terms of infinite sums or infinite dimension matrices. Thirdly, we derive estimators of the cost of equity capital and its reliability which are in terms of finite sums and easy to calculate. We show that these estimated converge to the cost of equity capital and its reliability. Finally, our procedure for estimation applies to a wide variety of time series models that may be used to forecast dividends.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0013-791X
1547-2701
DOI:10.1080/00137919608967482