Damodaran’s first 2012 ERP, a data update–and Lady Gaga
Professor Aswath Damodaran (NYU Stern School of Business) has just updated the implied equity risk premium (ERP) for the S&P 500 to 6.04% at the start of 2012, up from 5.20% at the start of last year. “The key factor behind the rise was the increase in cash flows (dividends and buybacks on the index) and the [...]
Look for more international cost of capital data in early 2012…
BVR has been working with top providers to develop a robust cost of capital model appraisers and investors can use when valuing international assets. Our hope is to release a major product in this area in March 2012. We have also licensed industry risk reports by country from London-based Business Monitor International, and will [...]
New paper says European ERPs approach 4% to 7%
Authors from the Technical Univ. of Munich have just posted their new whitepaper, “The Equity Risk Premium across European Markets: An Analysis Using the Implied Cost of Capital,” at SSRN. “Using a large data set of companies from 16 European countries over the period between January 1994 and May 2011,” the authors’ summary says, “we [...]
Best resources for calculating country-specific COC, brought to you by the globally minded ASA
The ASA’s 30th Annual Advanced Business Valuation conference in Chicago this week reflected the country’s broader concern with international markets, starting with the first general session: “International Cost of Capital—A Walk Around the Globe,” by Nancy Czaplinski (American Appraisal). Via a case study, Czaplinski applied six different cost of capital (COC) models to use in today’s [...]
HL’s ‘Risky Risk Rate’ article is now available free online
The Houlihan Lokey article mentioned in last week’s BVWire—currently titled, “The ‘Risky’ Risk-Free Rate: Does the Downgrade of U.S. Sovereign Debt Change Commonly-Used Valuation Approaches?” is now posted on the HL website. This is one of the more thoughtful responses to the impact of this credit imbroglio on valuation analyses–BVU and BVWire have both covered other helpful [...]
Houlihan Lokey provides proxies for risk-free rate after downgrade
What are the new considerations for cost of capital determinations, given the recent S&P downgrade of U.S. debt? Should analysts add a default premium—or even a “country risk” premium?” Four Houlihan Lokey professionals (Cindy Ma, Terence Tchen, Tim Smith and Andrew MacNamara) provide some current options in their new article, “The ‘risky’ risk rate: does the [...]
Debate on the size premium continues; so does analysis of vital healthcare sector
On August 25th Jim Harrington (Duff & Phelps) and Ted Israel (Ekhoff Accounting) will join BVR for “The Overlap of Company-Specific Risk and the Size Premium.” The expert duo will examine new research suggesting that double-counting of some company-specific risk measures may be occurring, particularly if these risks are already embedded in a subject company’s [...]
Has the BV community lost sight of the discount rate?
That’s what Gary Trugman (Trugman Valuation Associates) wondered after reading the lead item in last week’s BVWire about the potential downgrading of U.S. debt, now an economic (and emotional) reality. His response: Although I agree wholeheartedly with Roger Grabowski, the question raised is much more fundamental. I am seeing valuation analysts plug risk-free rates into a [...]
We’ve been downgraded: BVR webinar on what the credit downgrade means for cost of capital analyses
The news late last week that the S&P had downgraded U.S. credit for the first time in history sent uncertainty throughout global markets. Now, as the business appraisal community wakes to this new reality, many issues are emerging, including those related to the risk free rate, the correlation between volatile public markets and private company [...]
Now that Washington is done embarrassing itself, what risk-free rate should you use?
A BVWire reader recently asked us about how to derive the risk-free rate in the even U.S. debt is downgraded. We turned to Roger Grabowski (Duff & Phelps) for one answer: During these episodes of flight to quality [securities and assets], one needs to reevaluate simply using the quoted risk-free rate as the basic building [...]
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