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Chapter 10

5.4 Cost of capital – note on proxy information

The cost of capital used must reflect the risk of the entity's cash flows.

 Quoted company – easy to identify cost of capital, using the huge
amount of information which is publicly known.

 Unquoted company (or a division of a company) – much more
difficult (due to lack of available information) to identify an
appropriate cost of capital.

If a cost of capital is not given, or if is difficult to derive one, a proxy cost
of capital from a similar quoted company could be used instead.

Much more detail on deriving a suitable cost of capital is presented in
the next section below.

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