A survey of methods used to estimate cost of capital by utility parastatals based in Nairobi
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Date
2011Author
Otieno, Stephen O
Type
ThesisLanguage
en_USMetadata
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Cost of capital estimation has been among the various key decisions required of finance managers. Most studies on cost of capital estimation methods have focused on overseas practice. Very few that had been conducted in Kenya concentrated on testing the practicability of individual models using Kenyan sample. The current study therefore sought to establish the methods used by utility parastatals based in Nairobi to estimate cost of capital.
A census survey method was employed for the study of a population comprising 14 parastatals engaged in provision or regulation of utility services in energy, telecommunications and water sectors. The study employed a survey research design and the data was collected through questionnaires administered vide interviews. Quantitative analysis of data was used in which the collected data was reduced into numerical codes and then calculated into percentages and means. Data presentation was done in form of
graphs, pie charts and tables.
The results suggest that non-elaborate models are widely used, CAPM's use is modest, while other asset pricing models are not used. Weighted average cost of capital is computed and is most likely to be based on book value weights. However, tax effects are not factored in. The study findings will provide important information to practitioners by identifying areas where academic recommendations have not been implemented.
Publisher
University of Nairobi, Kenya