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Calculation of AverageWeighted Cost of Capital for Individual Shares of Sarajevo and Banja Luka Stock Exchange

Almir Alihodžic and Dejan Eric
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Almir Alihodžic: University of Zenica, Bosnia and Herzegovina
Dejan Eric: Institute of Economic Sciences, Serbia

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Abstract: The cost of capital is a discount rate, based on which discounted cash flow factor and residual value are determined. The cost of capital in literature is often found by the name of cost of capital or the opportunity cost of capital, which should provide a rate of return on capital that would be formed from an alternative investment capital. In order to achieve this, the cost of capital also includes a risk to achieve the rate of return. The Weighted Average Cost of Capital - WACC represents the average rate of return that a company must pay to shareholders and creditors. Most often, it is an adjusted discount rate, suitable for the risk of cash flows of companies. The cost of capital depends on the risk of cash flow businesses. In addition, the company is financed by borrowing or lending of funds, whether from banks, individuals or other sources. This paper explores the possibility to calculate weighted average cost of capital for individual shares within the share market indexes of SASX – 30 and BIRS.

Keywords: cost of capital; risk premium; beta coefficient; shares indices (search for similar items in EconPapers)
Date: 2013
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