This paper examines these issues. The risk premium is a key input to risk and return models. We examine the standard approaches to estimating risk premiums and the limitations of these approaches. In addition, we examine how best to estimate risk premiums in emerging markets. The beta or betas in risk and return models measure an asset's relative risk.
Many firms lease the assets that they use.
If the leases qualify as operating leases, they affect operating income and do not show up as part of capital. In this paper, we argue that this can distort measures of profitability and can affect the valuation of firms with substantial operating leases, and suggest ways in which we can correct earnings and cash flow measures. Since these are expenses that are designed to generate future growth, it is much more logical to treat them as capital expenditures. The last two decades have seen a stream of innovation in financial markets, especially in the corporate bond arena. Some of these innovations were designed to give firms more flexibility in designing cash flows on borrowings, allowing them to match up cash flows on financing more closely to cash flows on assets, thus increasing their debt capacity.