Should Business Appraisers “Normalize” Long-Term Treasury Rates When Building Equity Discount Rates? Reviewed by Momizat on . Some valuation practitioners use a normalized risk-free rate in determining the cost of capital.  This can inflate the cost of equity by up to a couple of perce Some valuation practitioners use a normalized risk-free rate in determining the cost of capital.  This can inflate the cost of equity by up to a couple of perce Rating: 0
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Should Business Appraisers “Normalize” Long-Term Treasury Rates When Building Equity Discount Rates?

Some valuation practitioners use a normalized risk-free rate in determining the cost of capital.  This can inflate the cost of equity by up to a couple of percentage points, which in turn depresses valuation multiples.  Is normalizing the risk-free rate a rational, reasonable practice?  In today’s guest post, Chris Mercer suggests the answer is an emphatic no.

To read the full article in Mercer Capital’s Financial Reporting Blog, click: Should Business Appraisers “Normalize” Long-Term Treasury Rates When Building Equity Discount Rates?

This article is republished from Mercer Capital’s Financial Reporting Blog.  It is reprinted with permission.  To subscribe to the blog, visit: http://mercercapital.com/category/financialreportingblog/.

The National Association of Certified Valuators and Analysts (NACVA) supports the users of business and intangible asset valuation services and financial forensic services, including damages determinations of all kinds and fraud detection and prevention, by training and certifying financial professionals in these disciplines.

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