19. Hurdle Rates

Frugal Finance offers online courses covering various aspects of finance. One course focuses on the real-world side of figuring out the cost of equity and hurdle rates. It starts by explaining what the cost of equity is made of, like the risk-free rate and risk premium. Then, it talks about what makes an asset risk-free and why it’s crucial for financial analysis to get this right. The course also looks at how inflation affects risk-free rates for different currencies.

Another course deep leaps into equity risk premiums, which are vital for pricing assets. It breaks down the factors that influence these premiums and teaches different procedures for estimating them. From understanding how they fit into the Capital Asset Pricing Model (CAPM) to look at implied equity premiums and valuation models, the course gives a solid understanding of how risk premiums affect investment decisions.

There’s also a course on CAPM and betas, which looks at risk and return models, especially the CAPM and how to estimate betas. It covers the usual procedures for estimating CAPM parameters, betas, and alphas, with real-world examples and considerations for accurate estimation. It also talks about what factors affect betas, like the nature of the business and financial leverage.

The bottom-up betas course offers a different way to estimate betas by looking at business, operating leverage, and financial leverage components. It doesn’t rely on historical prices but instead uses the weighted average of individual asset betas based on market value. The course goes using the steps for implementing this approach, with real-world examples to show how it works in real-world situations.

Another course is all about estimating the cost of equity, which is crucial for both investors and company managers. By using the CAPM, students figure out the expected return on equity investments based on factors like risk-free rates and risk premiums. Real-world examples show how the cost of equity affects investment decisions and project evaluations.

Finally, there’s a course on the cost of capital for businesses. It covers the basics of figuring out the cost of debt, equity, and hybrid securities, including how to estimate them and factors that influence them like interest rates and default risk. The course also talks about weighting each financing component and determining market values, ending with calculating the cost of capital and how it’s used in investment analysis.