The cost of capital is best estimated from the perspective of a global investor and using both the market risk premium and beta measured against a global market portfolio and not against a local (foreign or domestic )market portfolio.

Question

Quizplus · Accepted Answer

The cost of capital should be estimated from a global investor's perspective as it takes into account all the risks associated with the investment. Estimating the cost of capital using both the market risk premium and beta in a global market portfolio provides a more accurate picture of the overall risk associated with the investment. Measuring the beta against a local market portfolio may not provide an accurate estimate of the risk from a global perspective.

The Cost of Capital Is Best Estimated from the Perspective