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Dilemmas in Estimating the Cost of Capital – Selected Problems

Summary/Abstract: The paper deals with basic definitions and kinds of risk (in the light of capital market theory). Long-term relationship between risk and return on the American capital market was presented. Sector risk observed in the US was discussed. Additionally, estimates of total risk (Beta) and cost of capital applied in the biggest public companies in Poland were presented. Results of the analysis proved that there is no relationship between key financial ratios, Beta, and all categories of the cost of capital. It likely results from wrong estimates of the cost of equity. It indicates a need for further research in the field, and requires an improvement of methodology and practice of estimating the cost of capital applied by Polish companies – both public and nonpublic.

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