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 [...]
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 [...]
Expert’s ‘hyberbole’ comes back to haunt in Daubert hearing
Experienced litigation experts know that their published articles and statements (even on a blog or in a professional discussion group) can be used against them in a courtroom. That’s what happened in a recent bankruptcy case, when the expert conducted an insolvency analysis without interviewing management or visiting the subject properties, yet claimed in a [...]
Watch for Business Valuation Review article on cost of capital changes
Rick Warner, the intrepid editor of the ASA’s Business Valuation E-letter, alerted his readers this morning to an article from Roger Grabowski in the Business Valuation Review coming out soon. Rick’s analysis: Roger Grabowski, ASA provided me with a draft of an article that is scheduled to appear in an upcoming issue of Business Valuation [...]
Del. Sup. Ct: Should merger price always establish fair value?
You may recall Global GT LP v Golden Telecom, Inc, in which—among many important conclusions—the Delaware Chancery Court declined to adopt an Ibbotson’s historic equity risk premium (ERP) in favor of one closer to supply-side ERP. (For a recap of Roger Grabowski’s comments on the case, see BVWire #96-3.) Based on all the evidence and [...]
Is there a capitalization rate limit? What do you think?
During the past couple of weeks, a question posted by Keith Borglum (Medical Practice Appraisal Valuation Services) LinkedIn’s BV Professionals Group elicited responses from a handful of valuation practitioners. Borglum asked: “is there a cap rate limit?” It is not surprising that some appraisers responded “it depends.” Joshua V. Azran (Azran Financial) said “it depends [...]
Damodaran’s website recommended for industry asset volatilities…but you may have to calculate debt volatility yourself…
The recent BVR webinar “The Use and Application of Option Pricing Modeling” elicited several questions from listeners, one of which was: “What is the best resource of obtaining volatility for debt? CapIQ? Bloomberg? What do you do if public comps don’t have publicly traded debt? Presenters Jim Walling (Grant Thornton) and Scott Beauchene (Strategic Value [...]
Need evidence that ERP requires analyst judgment? Here it is
A hat tip to Ron Seigneur (Seigneur Gustafson) for letting us know Pablo Fernandez(IESE Business School, Madrid, Spain) has collected recommendations on the equity premium from 150 corporate finance and valuation textbooks published between 1979 and 2009 by authors such as Brealey, Myers, Copeland, Damodaran, Merton, Ross, Bruner, Bodie, and Arzac. In his updated article, “Equity Premium [...]
Grabowski draws conclusions from ERP arguments in the Global GT case
The “Global GT” case (as reported in BVWire’s June “Supply-side ERP More Reliable, Says Delaware Chancery Court”) shows that at least some courts have become more sophisticated in their understanding of cost of capital analyses. There’s been lots of commentary on this issue (BVR’s digest is available at BVLaw)—but, as usual, Roger Grabowski summarizes the [...]
Should a Private Cost of Capital Method replace CAPM and BUM?
Most appraisers recognize the judgments and assumptions built into the process of converting measurable public market data into proxies for private company valuation. Capital asset pricing needs to be “modified” with a series of adjustments to the cost of capital figures derived from the public markets. This standard valuation process that has some financial theory [...]
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