need to make at least 8. 87 % as a return for their equity investors to break even.
this is the hurdle rate for projects, when the investment is analyzed from an equity
standpoint
! In other words, Disney’s cost of equity is 8. 87 %.
! What is the cost of not delivering this cost of equity?
The cost of equity is what equity investors in your company view as their
required return.
The cost of not delivering this return is more unhappy stockholders, a lower
stock price, and if you are a manager, maybe your job.
Going back to the corporate governance section, if stockholders have little or no
control over managers, managers are less likely to view this as the cost of equity.
