April 2014
Intermediate to advanced
1344 pages
44h 24m
English
book
Cost of Capital: Applications and Examples, + Website, 5th Edition
by Shannon P. Pratt, Roger J. Grabowski, Richard Brealey
Content preview from Cost of Capital: Applications and Examples, + Website, 5th Edition
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APPENDIX 19A
Examples Using the Duff & Phelps Risk Premium Report Data1
James P. Harrington
Guideline Portfolio Method versus Regression Equation Method
Using the Size Study— Examples
Using the “C” Exhibits—Examples
Closing Thoughts on Using the “C” Exhibits
Using the High-Financial-Risk Exhibits
Using the High-Financial-Risk Exhibits in the Build-up Method
USING THE RISK PREMIUM REPORT2
Before the analyst can use the Risk Premium Report (Report) data in estimating the cost of equity capital, he or she should understand the following:
- Choosing inputs when estimating the cost of equity capital and using the Report
- The difference between the “guideline portfolio method” and the “regression equation method”
- How to use the regression method when the subject company is small
- ERP adjustment, which is a necessary adjustment when using the build-up method
Inputs
When estimating the cost of equity capital using the Report, the user typically starts by making a few basic choices: a risk-free rate (Rf), an equity risk premium (ERP), and risk premium over CAPM from the “B” exhibits (i.e., size premium) (RPs), or a risk premium over the risk-free rate from the “A” or the “D” exhibits (RPm+s). Depending on the method selected to estimate cost of equity capital, the ERP adjustment may also have to be applied to account for the difference between the ...
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I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.