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 [...]
Mercer responds to NACVA/IBA debate on holding periods for minority interests
By Chris Mercer Let me first say that there is nothing magic about the concept of an expected holding period. Assume that the marketable minority value of a business is, indisputably, $1.00 per share. Assume that a restricted stock transaction occurred at $0.80 per share, or at a 20% discount. What was the expected [...]
Hitchner on how to reconcile Ibbotson’s 6.5% with D&P’s 4.5%
One question at the cost of capital session led by Jim Hitcher down in Miami; how do you justify choosing Ibbotson over D&P or vice verse? Jim’s answer was pragmatic and thoughtful: ”If you average two numbers that are far apart, the only thing you know is that you’re wrong. But, Ibbotson and Duff [...]
A story appraisers should read “every year”
“You probably have read these many times before, but I always recommend that appraisers read the introductory materials in SBBI and Duff & Phelps every year,” Jim Hitchner told a packed room at the slightly weird Fontainebleau conference center here in Miami. ”They’re both written in English, and I learn something new every year. Good [...]
Live from NACVA: When SBBI isn’t enough, try Morningstar’s new Peer Group Builder
Morningstar is making a bigger entry into the valuation space, as reported here previously. Besides their Ibbotson products, they’ve also begun to offer specialized valuation services. Mike Barad of Morningstar introduced their new Peer Group Builder for “the more sophisticated valuation professional” who needs a more precise dataset than is available in the Cost [...]
Damodaran updates equity risk premiums studies
Professor Aswath Damodaran (Stern School of Business, New York) updated his article Equity Risk Premiums (ERP): Determinants, Estimation and Implications to include data through the end of 2009. In the article, he investigates: the three basic approaches used to estimate equity risk premiums – the survey approach, where investors or managers are asked to provide [...]
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