1. Weighted average cost of capital (WACC)
The weighted average cost of long-term finance, it considers the proportion of both debt and equity rather than simply average of both.
Weighted average cost of capital= Market value of equity × Cost of equity + Market value of debt × Cost of debt
2. Dividend valuation model (DVM)
It is assumed that future cash flow is the dividend paid out by the company; dividends will be paid in perpetuity; dividends will be constant or growing at a fixed rate.
Ke =Do(1+g)/Po＋g
Po : ex-dividend share market price, cum-dividend share market price would not be used in above formula
Cum-div share price－Dividend due ﹦ Ex-div share price
3. Diversification
It can minimize the downside risk, and also could reduce the maximized earning.
Systematic risk: market wide risk
Non-systematic risk: company/ industry specific risk, these could be diversified away.
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