Explain briefly the various methods of computing cost of equity capital. Which of them do you consider most appropriate and why?

The cost of equity capital can be computed using various methods. Here are the most common ones:

1. Dividend Price Ratio Model: This model calculates the cost of equity by dividing the dividend per share by the market price per share and adding the growth rate of dividends. It is based on the assumption that the cost of equity is the dividend yield plus the rate of growth in dividends.

2. Earnings Price Ratio Model: This model calculates the cost of equity by dividing the earnings per share by the market price per share. It is based on the assumption that the cost of equity is the earnings yield.

3. Capital Asset Pricing Model (CAPM): This model calculates the cost of equity by adding the risk-free rate to the product of the equity's beta and the market risk premium. It is based on the assumption that the cost of equity is the risk-free rate plus a risk premium.

4. Arbitrage Pricing Theory (APT): This model calculates the cost of equity by adding the risk-free rate to the product of the equity's beta and various risk premiums. It is based on the assumption that the cost of equity is the risk-free rate plus various risk premiums.

The most appropriate method depends on the specific circumstances. However, the CAPM is often considered the most appropriate because it takes into account the risk-free rate, the equity's beta, and the market risk premium, which are all important factors in determining the cost of equity. Furthermore, it is widely used and accepted in the financial industry.