Details

Cost of Capital

Applications and Examples
Wiley Finance 5. Aufl.

von: Shannon P. Pratt, Roger J. Grabowski, Richard A. Brealey
173,99 €
Verlag:	Wiley
Format:	EPUB
Veröffentl.:	12.03.2014
ISBN/EAN:	9781118852828
Sprache:	englisch
Anzahl Seiten:	1344

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Beschreibungen

Titelbeschreibung

A one-stop shop for background and current thinking on the development and uses of rates of return on capital Completely revised for this highly anticipated fifth edition, Cost of Capital contains expanded materials on estimating the basic building blocks of the cost of equity capital, the risk-free rate, and equity risk premium. There is also discussion of the volatility created by the financial crisis in 2008, the subsequent recession and uncertain recovery, and how those events have fundamentally changed how we need to interpret the inputs to the models we use to develop these estimates. The book includes new case studies providing comprehensive discussion of cost of capital estimates for valuing a business and damages calculations for small and medium-sized businesses, cross-referenced to the chapters covering the theory and data. <ul> <li>Addresses equity risk premium and the risk-free rate, including the impact of Federal Reserve actions</li> <li>Explores how to use Morningstar's Ibbotson and Duff Phelps Risk Premium Report data</li> <li>Discusses the global cost of capital estimation, including a new size study of European countries</li> </ul> Cost of Capital, Fifth Edition puts an emphasis on practical application. To that end, this updated edition provides readers with exclusive access to a companion website filled with supplementary materials, allowing you to continue to learn in a hands-on fashion long after closing the book.

Inhaltsverzeichnis

About the Authors xiii Foreword xxiii Preface xxv Acknowledgments xxix PART ONE Cost of Capital Basics 1 CHAPTER 1 Defining Cost of Capital 3 CHAPTER 2 Introduction to Cost of Capital Applications: Valuation, Project Selection, and Ratemaking 11 CHAPTER 3 Net Cash Flow: The Preferred Measure of Economic Income 17 APPENDIX 3A Alternative Measures of Economic Income 30 CHAPTER 4 Discounting versus Capitalizing 36 APPENDIX 4A Equivalency of Capitalizing Residual Income 56 CHAPTER 5 Discounting—Beyond the Basics 60 CHAPTER 6 Relationship between Risk and the Cost of Capital 70 PART TWO Estimating the Cost of Equity Capital 89 CHAPTER 7 Risk-free Rate 91 CHAPTER 8 Equity Risk Premium 110 APPENDIX 8A Deriving ERP Estimates 141 APPENDIX 8B Other Sources of ERP Estimates 173 CHAPTER 9 Build-up Method 177 CHAPTER 10 Capital Asset Pricing Model 189 CHAPTER 11 Beta: Differing Definitions and Estimates 202 APPENDIX 11A Examples of Computing OLS Beta, Sum Beta, and Full-information Beta Estimates 225 APPENDIX 11B Estimating Beta: Interpreting Regression Statistics 234 CHAPTER 12 Unlevering and Levering Equity Betas 243 CHAPTER 13 Criticism of CAPM and Beta versus Other Risk Measures 269 APPENDIX 13A Example of Computing Downside Beta Estimates 298 CHAPTER 14 Size Effect 301 CHAPTER 15 Criticisms of the Size Effect 331 APPENDIX 15A Other Data Issues Regarding the Size Effect 363 CHAPTER 16 Company-specific Risk 372 CHAPTER 17 Distressed Businesses 400 APPENDIX 17A Cost of Capital and the Valuation of Worthless Stock 428 CHAPTER 18 Other Methods of Estimating the Cost of Equity Capital 444 CHAPTER 19 Using the Duff & Phelps Risk Premium Report Data 471 APPENDIX 19A Examples Using the Duff & Phelps Risk Premium Report Data 499 PART THREE Estimating the Overall Cost of Capital 519 CHAPTER 20 Other Components of a Business's Capital Structure 521 CHAPTER 21 Weighted Average Cost of Capital 544 APPENDIX 21A Iterative Process Using CAPM to Calculate the Cost of Equity Component of the Weighted Average Cost of Capital 576 PART FOUR Estimating the Cost of Capital—Non-Freely Traded Interests 609 CHAPTER 22 Handling Discounts for Lack of Marketability and Liquidity for Minority Interests in Operating Businesses 611 CHAPTER 23 Cost of Capital of Family Holding Company Interests 630 CHAPTER 24 The Private Company Discount for Operating Businesses 650 CHAPTER 25 Cost of Capital of Interests in Pass-through Entities 663 CHAPTER 26 Relationship between Risk and Returns in Venture Capital and Private Equity Investments 680 CHAPTER 27 Cost of Capital for Closely Held Businesses 693 PART FIVE Corporate Finance Officers: Using Cost of Capital Data 711 CHAPTER 28 Capital Budgeting and Feasibility Studies 713 CHAPTER 29 Cost of Capital for Divisions and Reporting Units 722 CHAPTER 30 Cost of Capital for Fair Value Reporting of Intangible Assets 757 CHAPTER 31 Cost of Capital in Evaluating Mergers and Acquisitions 779 CHAPTER 32 Cost of Capital in Transfer Pricing 793 APPENDIX 32A Cost of Capital in Transfer Pricing Example 822 CHAPTER 33 The Role of the Cost of Capital in EVA and in Corporate Value-Based Management 825 PART SIX Other Cost of Capital Considerations 839 CHAPTER 34 Estimating Economic Income 841 CHAPTER 35 Minority versus Control Implications of Cost of Capital Data 861 CHAPTER 36 How Cost of Capital Relates to the Excess Earnings Method of Valuation 873 CHAPTER 37 Adjusting the Discount Rate to Alternative Economic Income Measures 881 PART SEVEN Considerations in Special Applications 897 CHAPTER 38 How Courts View Cost of Capital 899 CHAPTER 39 Global Cost of Capital Models 1011 CHAPTER 40 Cost of Capital of Real Property—Individual Assets 1052 APPENDIX 40A Valuing Real Property 1076 CHAPTER 41 Cost of Capital of Real Estate Entities 1084 APPENDIX 41A Valuing Real Estate Entities 1122 PART EIGHT Case Studies 1129 CHAPTER 42 Cost of Capital for a Mid-Sized Company 1131 APPENDIX 42A Report for Cost of Capital for a Mid-Sized Company 1138 CHAPTER 43 Cost of Capital for a Smaller-Sized Company 1162 APPENDIX 43A Report for Cost of Capital for a Smaller-Sized Company 1168 PART NINE Advice to Practitioners 1179 CHAPTER 44 Common Errors in Estimation and Use of Cost of Capital 1181 CHAPTER 45 Advice on Dealing with Cost of Capital Issues 1199 APPENDIX I Bibliography 1213 APPENDIX II Data Resources 1239 APPENDIX III Glossary of Cost of Capital Terms 1253 About the Website 1266 Index of Cases 1267 Index 1271

Autorenportrait

Shannon P. Pratt, CFA, FASA, ARM, MCBA, CM&AA, referred to as the father of business valuations, is the author of several bestselling Wiley business valuation books and a sought-after speaker at business valuation industry conferences. He is the managing owner of Shannon Pratt Valuations, Inc., and has served as supervisory analyst for over 3,000 business valuation engagements in forty years and as an expert witness in numerous state and federal courts on contested business valuations. Dr. Pratt is co-author of the upcoming Lawyer's Guide to Cost of Capital. Roger J. Grabowski is managing director of Duff & Phelps LLC. Roger has testified in court as an expert witness on the value of closely held businesses and business interests, matters of solvency, valuation, and amortization of intangible assets, and other valuation issues. He testified in the Northern Trust case, the first U.S. Tax Court decision that adopted the discounted cash flow method to value the stock of a closely held business with the discount rate based on the capital asset pricing model. Grabowski authors the annual Duff & Phelps Risk Premium Report and is co-author of the upcoming 2014 Valuation Handbook:Guide to Cost of Capital and co-author of the upcoming Lawyer's Guide to Cost of Capital.

Back cover copy

Cost of Capital, Fifth Edition: Applications and Examples Cost of Capital is published with updated authoritative text, applications, workbook examples and cases, a technical supplement, and website. Completely revised for this highly anticipated fifth edition, there are expanded materials on estimating the basic building blocks of the cost of equity capital, the risk-free rate, and equity risk premium. There is an expanded discussion on the volatility created by the financial crisis in 2008, the subsequent recession and uncertain recovery, and how those events have fundamentally changed how we need to interpret the inputs to the models we use to develop these estimates. Cost of Capital includes new case studies providing comprehe sive discussion of cost of capital estimates for valuing a business and damages calculations for small and medium-sized businesses, cross-referenced to the chapters covering the theory and data. Teeming with new quotes and citations to relevant material from the leading authorities on capital valuation, the new edition includes updated discussion of the following issues: <ul> <li>Equity risk premium and the risk-free rate, including the impact of Federal Reserve actions</li> <li>How to use Morningstar's Ibbotson and Duff & Phelps Risk Premium Report data Criticisms of CAPM and reasons why multiple procedures should be used in developing discount and capitalization rates</li> <li>Global cost of capital estimation, including a new size study of European countries</li> <li>Adjusting discount and capitalization rates for different measures of economic income, including pretax discount rates</li> </ul> Cost of Capital: Applications and Examples puts an emphasis on practical application. To that end, this updated fifth edition provides readers with exclusive access to a companion website filled with supplementary materials, allowing you to continue to learn in a hands-on fashion long after closing the book.