Abstract
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 1.87% and IRR on cost is 4.38%. An industry analysis revealed large differences in returns, with five out of six industry sectors achieving positive nominal and real IRRs. The cash flows component analysis reveals that on average, New Zealand firms generated income equal to 4.93% of beginning of year book value, which is much less than the comparable US rate of 8.83% (Fama and French, 1999). Mirroring this income difference, the issuance of equity by New Zealand companies equal to 5.57% of the beginning book value, greatly exceeded the US rate of 0.81% (Fama and French, 1999). Although New Zealand firms tend to place more reliance on equity issues to finance their total investment requirements, debt issues are also often used.