Module 4 BHS427 Health Care Finance Cost of Capital (CASE) Essay

Module 4 BHS427 Health Care Finance court of Capital (CASE) - Essay ExampleDespite being highly criticized, CAPM is commonly used by investors and managers, possibly due to its sundry advantages over other models. By using systematic riskiness only, CAPM tends to be not only more realistic but also simpler by eliminating the unsystematic risk. Remarkably, the relationship between the securities industry risk and expected count of return is easily shown by the Security Market Line. Secondly, in addition to being empiric all toldy testable, CAPM compares the particular investments level of risk to the stock market risk unlike DGM. Moreover, CAPM overcomes WACCs assumption that investment has no influence on financial risk hence making it emend in project appraisal.Conversely, CAPMs assumptions make it less viable in reality. In project appraisal, the use of a single-period time zone contradicts the nature major real investments, which cut across periods. Moreover, its unrealistic to assume a constant beta for the periods as market conditions keep on fluctuating. Again, CAPM faces a fuss in assigning values to the variables in the model. None of the variables is constant, with some such as yield on government debt (used to estimate risk free rate of return) changing on daily basis.Dolde et al (2012) research was aimed at determining whether the two factors international CAPM (2F-ICAPM) gives a different cost of capital compared to the domestic CAPM in the main used by US companies. Pre-studies had shown that the single global CAPM generated costs of equity not significantly different from the domestic CAPM despite the former models theoretical superiority, hence explaining why managers had not shifted from the domestic CAPM. To formulate the2F-ICAPM, Dolde et al incorporated the world market Index and currency index for chief currencies all expressed in US dollars, making this model theoretically superior to both