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How CAPM be used to estimate the cost of captial for real but not financial investment decision? |
what's the difference between real and financial investment decision anyway? What does it has to do with CAPM? please someone make me understand. thanks! I'm not sure if I entirely understand the question, but I'll give it a shot. CAPM (capital asset pricing model) is designed to help figure out the price of an asset-----typically a stock. In the case of a stock, you'd look at the company you are evaluating, and consider cash flows, and also the cost of capital, which is made up of cost of equity and cost of debt. In a real estate investment, you'd still consider cash flows (for a rental, for example). For cost of debt, you'd use the cost of the mortgage on the property. For cost of equity, think about the money you have tied up in the property (say, the down payment), and consider the opportunity cost---how much could you make on that money if it weren't tied up in the property? |
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