Business Conditions and Cost of Capital: Evidence from the Field

The goal of this MQP was to understand how executives in companies estimate and value their cost of capital in investment projects. There is no concrete universal method of valuation that a majority of companies use.The aim was to compare the more traditional methods of the capital asset pricing model and the weighted average cost of capital method with and against newer or more hybrid methods, such as capital expenditure. After gathering survey data from executives in companies across the northeast, we analyzed responses, and discovered a recurrence of themes. Although we expected the capital asset pricing model to be the most widely used method for estimation, it was found that more discounted cash flows and hybrids methods are used to estimate and value the cost of capital