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 [...]
Federal court asks experts for the ‘just right’ discount rate
A bankrupt chemical business didn’t owe $16.3 million in damages for breach of contract, because the claims were barred by the statute of limitations and a prior settlement. But just in case—the federal district court considered an issue that was certain to come up on an appeal: calculation of the discount rate to present value [...]
Harrington emphasizes key advantages of D&P Risk Premium Report
The Duff & Phelps Risk Premium Report and the Ibbotson SBBI Valuation Yearbook dominate the market for ERP and related cost of capital data. But, the fact that the D&P Report publishes specific information about the companies that comprise its portfolios “ enables analysts to gauge how similar (or dissimilar) their subject companies are to [...]
Tap into your inner Columbo during site visits
In his presentation, “The Cause-and-Effect Approach to Gauging Unsystematic Risk” at the CalCPA conference last week, Warren Miller (Beckmill Research) emphasized the importance of the site visit in a valuation engagement. “Many appraisers give the on-site interview short shrift,” says Miller. “This is not a social call, folks. The site visit is your chance to connect [...]
Live NACVA Report: Three times is the charm for market factors in cost of capital
Roger Grabowski (Duff & Phelps) believes that the market impact on cost of capital has now hit a “blip” for the third time in history—with the last two being November 2008 and May 2010. “In May 2011, the risk free rate as we generally calculate it [based on 20-year Treasuries] was influenced by major investors [...]
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