The Corporate Cost of Capital and Financial Investment in New Zealand

The Corporate Cost of Capital and Financial Investment in New Zealand

Cash Flow Analysis and IRR of Corporates

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We have estimated the cost of capital for the New Zealand listed non-finance corporate sector by the corporate internal rate of return method adopted by Fama and French (1999). The real IRR on value is 3.61% and IRR on cost is 5.15%. An industry analysis revealed large differences in returns, with four out of five industry sectors achieving positive real IRRs. The cash flows component analysis reveals that on average, New Zealand firms generated income equal to 5.26% of beginning year book value, which is much less than the comparable US rate of 8.83% (Fama and French, 1999). Mirroring this in...