Derivation of Cost of Capital and Equity Rates from Market Data

Use of the discounted cash flow (DCF) technique in investment and appraisal situations depends on readily available and reliable estimates of cost of capital and equity rates. Previous research on estimating equity rates and cost of capital from financial data sources is extremely limited and includes no evidence on the consistency of rates derived from alternative data sources. This paper derives estimates of equity rates and cost of capital from three alternative commonly available data sources. Estimates are derived separately for operating properties and for homebuilder/land developers on both a before- and after-corporate tax basis. The alternative data sources are found to yield consistent and reliable estimates of equity rates and cost of capital. Rates estimated from these sources are sufficiently accurate and reliable for most investment or appraisal applications. Copyright American Real Estate and Urban Economics Association.

The Price Effects of Cash versus Mortgage Transactions

This paper investigates the price effects of cash versus mortgage transactions. Our hypothesis that home sales involving all-cash transactions will sell at discount is borne out by the results of this study. Analyzing a sample of comparable row home dwelling units, we find that all-cash transactions are associated with roughly a 13% price discount relative to transactions involving financing terms that are typical of the market. Cash is King. The findings are consistent with theories regarding buyer-seller behavior. Copyright American Real Estate and Urban Economics Association.

Focus, Transparency and Value: The REIT Evidence

Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/71733/1/1540-6229.00785.pd