Capital Budgeting

Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2013 Edition ArXiv ID: ssrn-2238064 “View on arXiv” Authors: Unknown Abstract Equity risk premiums are a central component of every risk and return model in finance and are a key input in estimating costs of equity and capital in both cor Keywords: Equity Risk Premiums, Cost of Equity, Risk and Return Models, Capital Budgeting, Corporate Finance, Equity Complexity vs Empirical Score Math Complexity: 5.0/10 Empirical Rigor: 3.0/10 Quadrant: Lab Rats Why: The paper discusses theoretical risk-return models (like CAPM and multi-factor models) which involve mathematical formulas, but the excerpt shows conceptual explanation rather than dense derivations. Empirical rigor is low as it focuses on conceptual discussions, historical data limitations, and forward-looking estimates without providing backtesting, code, or implementation-heavy datasets. flowchart TD A["Research Goal<br>Determine & estimate the Equity Risk Premium (ERP)<br>for corporate finance & valuation"] --> B["Key Inputs & Data<br>• Historical Market Returns (Equity & Bonds)<br>• Implied ERP from Valuation Models<br>• Macroeconomic Factors (Inflation, Interest Rates)"] B --> C["Methodology<br>1. Historical Approach<br>2. Forward-Looking/Implied ERP<br>3. Macroeconomic Determinants"] C --> D["Computational Process<br>• Estimate Historical ERP<br>• Forecast future ERP<br>• Adjust for risk & macro conditions"] D --> E["Key Findings & Outcomes<br>• ERP varies over time (not constant)<br>• Influenced by macroeconomic factors<br>• Crucial for Cost of Equity & Capital Budgeting"]

Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2015 Edition ArXiv ID: ssrn-2581517 “View on arXiv” Authors: Unknown Abstract Equity risk premiums are a central component of every risk and return model in finance and are a key input in estimating costs of equity and capital in both cor Keywords: Equity Risk Premiums, Cost of Equity, Risk and Return Models, Capital Budgeting, Corporate Finance, Equity Complexity vs Empirical Score Math Complexity: 6.0/10 Empirical Rigor: 4.0/10 Quadrant: Lab Rats Why: The paper introduces advanced financial models like CAPM and multi-factor models with formulas, indicating moderate math complexity. However, it focuses on conceptual frameworks and theoretical estimation approaches (historical, survey, implied) without providing specific backtests, code, or detailed empirical datasets. flowchart TD A["Research Goal: Determine ERP"] --> B{"Methodology & Inputs"}; B --> C["Data: Historical Market Returns<br>Risk-Free Rate<br>Implied ERP from Valuation"]; B --> D["Model: DCF & Risk Models"]; C --> E{"Computational Process"}; D --> E; E --> F["Estimate Base ERP<br>+ Adjust for Risk Factors"]; E --> G["Forward-Looking Analysis<br>vs. Historical Averages"]; F --> H["Key Outcomes"]; G --> H; H --> I["2015 ERP Estimate<br>5.5% - 6.5%"]; H --> J["Implications for:<br>Cost of Equity & Capital"];

Ten Badly Explained Topics in Most Corporate Finance Books ArXiv ID: ssrn-2079055 “View on arXiv” Authors: Unknown Abstract This paper addresses 10 corporate finance topics that are not well treated (or not treated at all) in many Corporate Finance Books. The topics are: 1. Where doe Keywords: Corporate Finance, Capital Budgeting, Cost of Capital, Valuation, Corporate Equity Complexity vs Empirical Score Math Complexity: 4.5/10 Empirical Rigor: 1.0/10 Quadrant: Philosophers Why: The paper focuses on conceptual clarification and critique of established financial theory (like WACC and equity premium) with moderate mathematical notation, but it lacks any empirical data, backtests, or implementation details, relying instead on reviewing textbook recommendations and theoretical arguments. flowchart TD R["Research Goal: Identify 10 topics<br>poorly explained in Corporate<br>Finance books"] --> M["Methodology: Content analysis of<br>leading Corporate Finance texts"] M --> D["Data: Leading corporate finance<br>textbooks and literature"] D --> C["Computational Process: Cross-referencing<br>concepts vs. explanations; gap analysis"] C --> F["Key Findings: Identified gaps in<br>Cost of Capital, Valuation,<br>Equity structures, and Capital Budgeting"]

Ten Badly Explained Topics in Most CorporateFinanceBooks ArXiv ID: ssrn-2044576 “View on arXiv” Authors: Unknown Abstract This paper addresses 10 corporate finance topics that are not well treated (or not treated at all) in many Corporate Finance Books. The topics are: Where the Keywords: Corporate Finance, Capital Budgeting, Cost of Capital, Valuation, Corporate Equity Complexity vs Empirical Score Math Complexity: 2.0/10 Empirical Rigor: 1.0/10 Quadrant: Philosophers Why: The paper is a conceptual critique of topics in corporate finance textbooks with no evidence of mathematical derivations or empirical backtesting, focusing on theoretical and pedagogical gaps. flowchart TD A["Research Goal: Identify & explain 10 corporate finance topics poorly covered in textbooks"] --> B["Methodology: Critical review & synthesis of leading corporate finance textbooks & academic literature"] B --> C["Data/Input: Common textbooks & their treatment of Capital Budgeting, Cost of Capital, Valuation"] C --> D["Computational Process: Comparative analysis of theoretical concepts vs. applied practice gaps"] D --> E["Outcome: 10 key topics identified & clarified (e.g., Cost of Capital, Equity Valuation)"] E --> F["Outcome: Revised frameworks for Capital Budgeting & Corporate Finance pedagogy"]

Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2018 Edition ArXiv ID: ssrn-3140837 “View on arXiv” Authors: Unknown Abstract The equity risk premium is the price of risk in equity markets and is a key input in estimating costs of equity and capital in both corporate finance and valuat Keywords: Equity Risk Premium (ERP), Cost of Equity, Capital Budgeting, Valuation Models, Equities Complexity vs Empirical Score Math Complexity: 3.0/10 Empirical Rigor: 4.0/10 Quadrant: Philosophers Why: The paper focuses on conceptual discussions and determinants of the equity risk premium with limited advanced mathematical derivations, and while it uses historical and implied data, it does not present a systematic backtesting framework with implementation details. flowchart TD A["Research Goal: Determine &<br>Estimate Equity Risk Premium"] --> B["Key Methodology<br>Historical & Fundamental Analysis"] B --> C["Data & Inputs<br>Dividend Yields, Earnings Growth<br>Bond Yields, Inflation"] C --> D["Computational Process<br>Build DCF Models &<br>Deconstruct ERP Components"] D --> E{"Key Findings & Outcomes"} E --> F["ERP is Dynamic<br>Highly Sensitive to<br>Macro Conditions"] E --> G["CRP: Consumer Risk<br>Premium is a Key<br>Determinant"] E --> H["Valuation Outcome<br>Cost of Equity Capital<br>Estimates for Investment"]

Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2014 Edition ArXiv ID: ssrn-2409198 “View on arXiv” Authors: Unknown Abstract Equity risk premiums are a central component of every risk and return model in finance and are a key input in estimating costs of equity and capital in both cor Keywords: Equity Risk Premium, Cost of Equity, Risk and Return Models, Valuation, Capital Budgeting Complexity vs Empirical Score Math Complexity: 2.5/10 Empirical Rigor: 4.0/10 Quadrant: Philosophers Why: The paper focuses on conceptual discussion of risk premium determinants and methodological comparisons (historical, survey, implied) with minimal advanced mathematical derivation. While it discusses estimation approaches and financial implications, it does not present code, backtesting results, or detailed statistical implementations, placing it more in the conceptual/theoretical realm. flowchart TD A["Research Goal: Determinants, Estimation & Implications of ERP"] --> B["Key Data Inputs: Historical Returns, Macro-economic Variables, Survey Data"] B --> C["Methodology: Historical & Forward-Looking Estimation Models"] C --> D["Computational Process: Risk Premium Calculation & Adjustment"] D --> E{"Key Findings: ERP Sensitivity to Market Conditions & Valuation Impact"} E --> F["Implication: Cost of Equity & Capital Budgeting Decisions"]

Prima de riesgo del mercado utilizada para España: encuesta 2011 (The Equity Premium in Spain: Survey 2011) ArXiv ID: ssrn-1822422 “View on arXiv” Authors: Unknown Abstract Spanish Abstract: Este documento resume 1.502 respuestas a una encuesta por realizada a directivos de empresas, a analistas y a profesores de universidad Keywords: Corporate Finance, Capital Budgeting, Investment Decisions, Survey Analysis, Real Options, Corporate Finance Complexity vs Empirical Score Math Complexity: 2.0/10 Empirical Rigor: 3.0/10 Quadrant: Philosophers Why: The paper is an empirical survey of practitioners’ opinions with minimal mathematical formulas, relying on descriptive statistics and qualitative comments, placing it in the low math/low rigor quadrant. flowchart TD A["Research Goal: Estimate the Equity Risk Premium in Spain for corporate valuation"] --> B["Data Collection via Survey 2011"] B --> C["Participants: 1,502 Corporate Executives, Analysts, & Professors"] C --> D{"Key Methodology: Analysis of Discount Rate & Risk Perception"} D --> E["Computational Process: Aggregation & Statistical Analysis of Responses"] E --> F["Key Findings: Reported Equity Risk Premium Values & Industry Differences"] F --> G["Outcome: Benchmark for Valuation in Corporate Finance & Investment Decisions"]

Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2011 Edition ArXiv ID: ssrn-1769064 “View on arXiv” Authors: Unknown Abstract Equity risk premiums are a central component of every risk and return model in finance and are a key input into estimating costs of equity and capital in both c Keywords: Equity Risk Premium, Cost of Equity, Risk and Return Models, Valuation, Capital Budgeting, Equity Complexity vs Empirical Score Math Complexity: 3.5/10 Empirical Rigor: 4.0/10 Quadrant: Philosophers Why: The paper focuses on conceptual frameworks, determinants, and comparative estimation approaches (historical, survey, implied) for the equity risk premium, using established financial formulas like the CAPM rather than advanced derivations. While it discusses data and practical implications, it is primarily a review and synthesis of existing methodologies without presenting new backtests, complex statistical models, or implementation-heavy empirical studies. flowchart TD Start(["Research Goal:<br>Estimate ERP for 2011"]) --> Inputs subgraph Inputs ["Data/Inputs"] I1["Historical Market Returns"] I2["Risk-Free Rates"] I3["Inflation Rates"] end Inputs --> Method subgraph Method ["Key Methodology Steps"] M1["Historical ERP Calculation"] M2["Implied ERP Modeling"] M3["Forward-Looking Adjustments"] end Method --> Comp subgraph Comp ["Computational Processes"] C1["Statistical Aggregation"] C2["Regression Analysis"] C3["Risk Factor Decomposition"] end Comp --> Outcomes subgraph Outcomes ["Key Findings"] O1["Implied ERP: ~5-6%"] O2["Country Risk Premiums"] O3["Valuation Adjustments"] end

Into the Abyss: What If Nothing is Risk Free? ArXiv ID: ssrn-1648164 “View on arXiv” Authors: Unknown Abstract In corporate finance and investment analysis, we assume that there is an investment with a guaranteed return that offers both firms and investors a “risk free” Keywords: corporate finance, risk-free rate, investment analysis, cost of capital, capital budgeting, Corporate Equity Complexity vs Empirical Score Math Complexity: 4.0/10 Empirical Rigor: 2.0/10 Quadrant: Philosophers Why: The paper focuses on conceptual discussions and theoretical implications of the risk-free rate, with moderate mathematical notation but no complex derivations or empirical data; it lacks backtesting or implementation details. flowchart TD Q["Research Question: Is a truly Risk-Free Rate Possible?"] --> M["Methodology: Review & Analysis"] M --> D["Data: Historical Defaults & Macro Shocks"] D --> C["Computation: Modeling & Scenario Analysis"] C --> F["Key Findings: No True Risk-Free Asset Exists"] F --> O["Outcome: Adjusted Cost of Capital Models"]

Equity Risk Premiums (ERP): Determinants, Estimation and Implications - The 2010 Edition ArXiv ID: ssrn-1556382 “View on arXiv” Authors: Unknown Abstract Equity risk premiums are a central component of every risk and return model in finance and are a key input into estimating costs of equity and capital in both c Keywords: equity risk premium, risk and return models, cost of equity, capital budgeting, valuation, Equities Complexity vs Empirical Score Math Complexity: 3.5/10 Empirical Rigor: 4.0/10 Quadrant: Philosophers Why: The paper uses standard financial mathematics like beta in the CAPM but avoids heavy derivations, focusing more on conceptual discussion and comparative analysis of estimation approaches. It discusses historical, survey, and implied methods for determining the equity risk premium, but the excerpt lacks concrete backtesting results, specific datasets, or detailed implementation protocols. flowchart TD A["Research Goal:<br>Estimate & Analyze ERP for Valuation & Cost of Equity"] B["Methodology:<br>Historical & Implied ERP Analysis"] C["Data Inputs:<br>Equity Returns, Bond Yields, Inflation, Credit Spreads"] D["Computation:<br>Build-up & Regression Models<br>Forward-Looking Adjustments"] E["Key Findings:<br>ERP > Historical Gov Bond Yields<br>ERP decreases as P/E increases<br>Higher ERP for Emerging Markets"] A --> B --> C --> D --> E