Original Articles

An Analysis of the Approaches used by Industrial Companies Listed on the JSE to Identify their Cost of Capital

Published in: De Ratione
Volume 5, issue 1, 1991 , pages: 27–40
DOI: 10.1080/10108270.1991.11435023
Author(s): A S PocockMann Pocock and Associates,, C de J CorreiaUniversity of Cape Town,, M P WormaldUniversity of Cape Town,

Abstract

In order to maximise shareholder’s wealth, financial managers need to estimate their firm’s cost of capital. This paper, which is based on the results of a questionnaire sent to industrial companies listed on the JSE, examines both the acceptance and application by South African financial managers of the cost of capital concepts and techniques hypothesised in financial management theory. The findings are also compared to the resuits of similar studies that have been conducted in the U.S.A. The results indicate that a significant proportion of the responding companies have not adopted approaches which are consistent with the concepts and theories as propagated by current financial management theory.

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