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Subject:  Re: EVA Economic Value Added Date:  3/3/2000  11:47 PM
Author:  wreis Number:  5703 of 8329

The fastest way to calculate a company's cost of capital for EVA is to use a financial metric called "beta" that can be found on many web sites (including TMF!).

The formula is:

Cost of capital = risk-free rate + beta * (equity risk premium)

I typically use 1-year T-bills for the risk-free rate. Long-term average is about 6%.

Equity risk premium, according to leading financial textbooks, is about 8.4% long-run average.

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