Download or read book New Estimates of the Equity Risk Premium and Why Business Economists Need Them written by Douglas J. Lamdin and published by . This book was released on 2002 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt: The equity risk premium (ERP) is used to estimate a firm's cost of equity and overall cost of capital. It therefore is relevant to, for example, capital budgeting analyses and calculation of economic value added. Unfortunately, current estimates of the ERP range widely. Some claim it has fallen to as low as around 2%, while others place it at 3 to 4 times this amount. Using a model that extracts the required return on equity from a valuation model based on dividends and repurchases of shares the ERP is estimated. This approach leads to estimates of the ERP of 3% to 6%.