Question

Hi All, I am working on Table 9.4 of estimated debt ratios with existing ratios(Applied corporate Finance, Damodaran), does anyone know how to estimate the cost of equity for future periods? Thank You!

Answer 1

Here is what I tried to do. I computed the expected values of equity and debt each year. To get the former, I had to allow for the increase in value of equity from price appreciation but I did net out dividends and buybacks... For debt, I looked at the starting debt and any repayments.. I used this debt to equity ratio to compute a new levered beta and the beta to get to a cost of equity.