Cost of Equity

  • Project Overview

The return on equity is estimated using the Capital Asset Pricing Model (CAPM), which adds an equity risk premium to a risk-free rate, where the equity premium comprises the market risk premium scaled by the firm's equity beta.

The allowed return on equity also needs to be adjusted to reflect the tax benefits from owning shares that pay dividends with attached imputation credits.

The QCA has reviewed its estimation methodology for all three of the market parameters: the risk-free rate, the market risk premium and gamma.

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