Estimating Cost of Equity in the Restaurant Industry: What is Your Required Rate of Return?

Authors

Melih Madanoglu, Florida Atlantic UniversityFollow
Murat Kizildag
Ersem Karadag

Type of Submission

Refereed Article

Abstract

Accurate estimation of cost of equity is critical when making capital investment decisions to allocate valuable corporate resources. While the importance of proper estimation of required rate of return of an investment project is well documented, challenges surrounding estimation of the cost of equity still abound. This paper empirically evaluates the viability of common cost of equity models to estimate required rate of return for the U.S. restaurant industry for the 1996-2010 period. The Full model which consists of five risk factors emerges as the soundest cost of equity model for the U.S. restaurant industry. We recommend that future studies assess the performance of cost of equity models in other countries and other segments of the hospitality industry.

Recommended Citation

Madanoglu, Melih; Kizildag, Murat; and Karadag, Ersem (2012) "Estimating Cost of Equity in the Restaurant Industry: What is Your Required Rate of Return?," Journal of Hospitality Financial Management: Vol. 20: Iss. 1, Article 4.
Available at: https://scholarworks.umass.edu/jhfm/vol20/iss1/4