Hershey is a dynamically developing company, which pays a batch of attending to its concern development along with involvements of stakeholders. In this respect, the cost of equity capital is peculiarly of import for the company and Hershey efforts to utilize different theoretical accounts to measure and calculate its cost of equity capital alterations and growing. Basically, the company focuses on the usage of three theoretical accounts, including the dividend growing, capital plus pricing theoretical account, and arbitrage pricing theory. As the affair of fact, all of the three theoretical accounts mentioned supra have their ain advantages and disadvantages but there is no cosmopolitan theoretical account that can be ever effectual and applicable. In this respect, it is possible to urge Hershey to utilize a combination of three theoretical accounts to measure its cost of equity capital adequately and to construct up prognosiss refering the farther development of the company and its selling place. In such a context, it is of import to put accent on the fact that each of the three theoretical accounts have their advantages and drawbacks, whereas a combination of the three theoretical accounts helps Hershey to carry on an in-depth analysis of its cost of equity capital.

Ease of usage of three theoretical accounts

At first glimpse, the three theoretical accounts used by Hershey are easy to utilize and they can be applied to the appraisal of the cost of equity capital for the company. On the other manus, stakeholders are interested in the dependable results of the usage of the three theoretical accounts. In such a context, the easiness of usage of the three theoretical accounts may be viewed as a challenge to the dependability of the appraisal and rating of the cost of equity capital for Hershey. Nevertheless, such a position on the three theoretical accounts is instead superficial. As the affair of fact, the easiness of usage of the three theoretical accounts implies that these theoretical accounts are widely-applied in the modern-day concern environment and their simpleness does non needfully connote the deficiency of dependability. In blunt contrast, the easiness of usage of the three theoretical accounts minimizes the hazard of mistake that can be made in the class of the computation of the cost of equity capital for Hershey.

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To set it more exactly, the dividend growing is used in the computation of the cost of equity capital and the dividend growing rate can be easy defined through the comparing and moral force of alterations of the dividend rate in the current twelvemonth and old old ages. The CAPM allows to specify the return rate on the land of the bing assets of the company, where APT allows to take into consideration non merely the prospect monetary value of assets but besides assess possible hazards the company can confront, which can impact the assets of the company. In such a manner, the three theoretical accounts are rather simple to utilize and, hence, they can be applied easy with the minimum hazard of mistake. In other words, the easiness of usage of the three theoretical accounts facilitates the application of these theoretical accounts to computation and appraisal of the cost of equity capital for Hershey.

Accuracy of each of the three theoretical accounts

Another of import inquiry that arises in the class of the execution of the three theoretical accounts to cipher and measure the cost of equity capital is the truth of each of the three theoretical accounts. In this regard, it is necessary to pay attending to the truth of computations and informations used by the company in the computations of the cost of equity capital. Basically, the informations needed for each of the three theoretical accounts can be taken from one-year studies of the company every bit good as its accounting information may be besides helpful to carry on indispensable computations and to measure the cost of equity capital.

The dividend growing rate every bit good as CAPM and APT are rather accurate because they are grounded on the accurate expression which allow carry oning the accurate computations. At the same clip, the easiness of usage increases the truth of the three theoretical accounts because it minimizes the hazard of mistakes in the class of computations. On the other manus, there is still a hazard of the unequal usage of informations or misunderstanding of the informations collected for the usage in the three theoretical accounts. In this respect, the dividend growing seems to be the least vulnerable to the inaccuracy of informations being used, whereas CAPM and APT involve the usage of informations that may alter under the impact of the development of the market state of affairs and the clip when the informations were collected. In such a manner, the truth of the three theoretical accounts is non perfect but still the overall truth is rather high. Therefore, it is possible to utilize the three theoretical accounts to cipher and measure the cost of equity capital for Hershey.

Dependability of the premises of each theoretical account

At the same clip, the dependability of the premises of the three theoretical accounts is one of the most of import standards on the land of which it is possible to do a definite decision on whether a theoretical account is deserving utilizing or non. Basically, the dependability of the three theoretical accounts has already been proved. At any rate, many companies keep utilizing the three theoretical accounts in the computation and appraisal of their equity plus capital. The extended experience of utilizing the three theoretical accounts implies that companies are confident in their dependability.

In add-on, the mathematical trial of the three theoretical accounts reveals the fact that they are dependable and trusty. At any rate, the dividend growing every bit good as CAPM and APT can be applied with the high degree of dependability. Although some research workers ( Mehrling, 2005 ) warn that the three theoretical accounts are non perfectly dependable and there is ever room for mistake in any of the three theoretical accounts. On the other manus, dividend growing, CAPM and APT are more dependable than some other theoretical accounts used for the computation and appraisal of the cost of equity capital for Hershey ( Rubinstein, 2006 ) .

Therefore, while utilizing the three theoretical accounts it is possible to trust on the results of the computations and appraisal of the cost of equity capital obtained with the aid of the dividend growing, CAPM and APT. However, it is possible to prove the statistical informations obtained in the consequence of the usage of three theoretical accounts. In this respect, it is possible to urge utilizing the void hypothesis.

Decision

Therefore, taking into history all above mentioned, it is of import to put accent on the fact that the three theoretical accounts discussed supra proved to be rather accurate and dependable. However, the dividend growing proves to be the most effectual theoretical account to be used because this theoretical account is grounded on the accurate informations that minimizes the hazard of the misunderstanding of informations as is the instance of both CAPM and APT. Furthermore, the dividend growing theoretical account relies on the internal development of the company and is non vulnerable to external influence as is the instance of CAPM and APT. For case, the alteration of monetary value or other issues that occur outside the company in the market or economic system affect systematically APT and CAPM. In this respect, the impact of external factors on the dividend growing is systematically lower that makes computations and appraisal of the cost of equity capital more dependable and accurate. Finally, the dividend growing is easy to utilize. At any rate, this theoretical account is easier to utilize compared to CAPM and APT that increases the dependability of the theoretical account and decreases the hazard of mistake even more. Therefore, the dividend growing is the most effectual theoretical account to be used for the appraisal of the cost of equity capital for Hershey.

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