The Dependence of the Cost of Capital on Degree of Diversification
The subject of this paper are theoretical and methodological aspects of determining the cost of capital on the example of two companies from the Energoprojekt system. The goal is to point out the most significant problems of determining the cost of capital in general, as well as to identify the...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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University of Montenegro - Faculty of Economics Podgorica
2018-03-01
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| Series: | Montenegrin Journal of Economics |
| Subjects: | |
| Online Access: | http://mnje.com/sites/mnje.com/files/053-067_-_popovic__paunovic_rrr.pdf |
| _version_ | 1818514997635973120 |
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| author | Zoran Popovic Mihailo Paunovic |
| author_facet | Zoran Popovic Mihailo Paunovic |
| author_sort | Zoran Popovic |
| collection | DOAJ |
| description | The subject of this paper are theoretical and methodological aspects
of determining the cost of capital on the example of two companies
from the Energoprojekt system. The goal is to point out the
most significant problems of determining the cost of capital in general,
as well as to identify the most significant determinants of those
costs. In addition, the paper has a goal to point out to the degree of
impact of diversification of those two companies on the cost of their
capital. Using the CAPM, the total cost of capital is calculated for
Energoprojekt Holding and Energoprojekt Industrija. In accordance
with that, the following hypotheses are formulated: (H0) The value of
the beta coefficient of both enterprises is equal to zero, (H1) Volatility
of the yield of shares of both companies is higher than the entire
market, (H2) The total cost of the Holding's capital is lower than the
total cost of the capital of Industrija and (H3) The largest component
of the equity cost in both companies is the country risk premium.
The first, second and third research hypotheses are confirmed in the
paper, while the null hypothesis is rejected. The total cost of capital
for Holding is equal to 14,80% and the total cost of capital for Industrija
is 17,10%. The main component of the cost of equity is the
risk premium of investing in Serbia, which is exceptionally high and
is equal to 6,40%. |
| first_indexed | 2024-12-11T00:23:16Z |
| format | Article |
| id | doaj.art-4433445850da4c42ae0cf711d79bb929 |
| institution | Directory Open Access Journal |
| issn | 1800-5845 1800-5845 |
| language | English |
| last_indexed | 2024-12-11T00:23:16Z |
| publishDate | 2018-03-01 |
| publisher | University of Montenegro - Faculty of Economics Podgorica |
| record_format | Article |
| series | Montenegrin Journal of Economics |
| spelling | doaj.art-4433445850da4c42ae0cf711d79bb9292022-12-22T01:27:39ZengUniversity of Montenegro - Faculty of Economics PodgoricaMontenegrin Journal of Economics1800-58451800-58452018-03-01141536710.14254/1800-5845/2018.14-1.4The Dependence of the Cost of Capital on Degree of DiversificationZoran Popovic0Mihailo Paunovic1 University of Belgrade, Faculty of Economics, SerbiaUniversity of Belgrade, Faculty of Technology and Metallurgy, SerbiaThe subject of this paper are theoretical and methodological aspects of determining the cost of capital on the example of two companies from the Energoprojekt system. The goal is to point out the most significant problems of determining the cost of capital in general, as well as to identify the most significant determinants of those costs. In addition, the paper has a goal to point out to the degree of impact of diversification of those two companies on the cost of their capital. Using the CAPM, the total cost of capital is calculated for Energoprojekt Holding and Energoprojekt Industrija. In accordance with that, the following hypotheses are formulated: (H0) The value of the beta coefficient of both enterprises is equal to zero, (H1) Volatility of the yield of shares of both companies is higher than the entire market, (H2) The total cost of the Holding's capital is lower than the total cost of the capital of Industrija and (H3) The largest component of the equity cost in both companies is the country risk premium. The first, second and third research hypotheses are confirmed in the paper, while the null hypothesis is rejected. The total cost of capital for Holding is equal to 14,80% and the total cost of capital for Industrija is 17,10%. The main component of the cost of equity is the risk premium of investing in Serbia, which is exceptionally high and is equal to 6,40%.http://mnje.com/sites/mnje.com/files/053-067_-_popovic__paunovic_rrr.pdfdiscount ratecost of equityCAPMdiversificationcountry risk premium |
| spellingShingle | Zoran Popovic Mihailo Paunovic The Dependence of the Cost of Capital on Degree of Diversification Montenegrin Journal of Economics discount rate cost of equity CAPM diversification country risk premium |
| title | The Dependence of the Cost of Capital on Degree of Diversification |
| title_full | The Dependence of the Cost of Capital on Degree of Diversification |
| title_fullStr | The Dependence of the Cost of Capital on Degree of Diversification |
| title_full_unstemmed | The Dependence of the Cost of Capital on Degree of Diversification |
| title_short | The Dependence of the Cost of Capital on Degree of Diversification |
| title_sort | dependence of the cost of capital on degree of diversification |
| topic | discount rate cost of equity CAPM diversification country risk premium |
| url | http://mnje.com/sites/mnje.com/files/053-067_-_popovic__paunovic_rrr.pdf |
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