Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 178

Bookscape Cost of Capital

Beta Cost of After-tax D/(D+E) Cost of

Equity cost of debt Capital

Market Beta 0. 82 7. 97 % 3. 30 % 16. 90 % 7. 18 %

Total Beta 2. 06 13. 93 % 3. 30 % 16. 90 % 12. 14 %

If we assume that the owners of a private business are not diversified, we arrive

at much higher estimates of costs of equity and capital.