American Eagle Apparel Stores. Module 6: Cost of Capital & Valuation By: Nick Cecero. Two Costs Investors Worry About. What investors expect to recover are 2 costs that must be compensated for when providing capital for use in the enterprise: The time value of money.
Module 6: Cost of Capital & Valuation
By: Nick Cecero
rEnt = (rD x (VD/VEnt)) + (rEq x (VEq/VEnt))
rD= After-tax cost of debt capital
VD/VEnt = The portion of enterprise value that is financed by debt holders
rEq= Cost of equity capital
VEq/VEnt = The portion of enterprise value that is financed by equity holders
Utilizing 10.52% Premium
Historical Equity Premium Since 1926
1.15 Beta was pulled from Bloomberg.
R^2 is less than .70 which means that it is not correlated to the benchmarked index. This is essentially saying that the Beta may not be the most reliable.
AEO has underperformed its benchmark index by 1%.
rEnt = (0% * ($-488,524/$2,064,016)) + (8.88% * ($2,552,540/$2,064,016))
Forecasted Share Price
Current Share Price