Rigging the Cost of Equity

Suggested benchmark analysis to assess the reasonableness of the cost of equity

In the February/March 2013 issue of the Financial Valuation & Litigation Expert (FVLE), Issue 41, Jim Hitchner authored “How to ‘Rig’ a Valuation: The Discount Rate.” This is the first of a two-part FVLE series. The article provides suggested guidance to unmask the intentional “rig.”

In the February/March 2013 issue of the Financial Valuation & Litigation Expert (FVLE), Issue 41, Jim Hitchner has authored “How to ‘Rig’ a Valuation: The Discount Rate.” This is the first of a two-part FVLE series. The article provides suggested guidance to unmask the intentional “rig.” Have you ever been involved in a valuation where you suspected another so-called expert “rigged” his or her valuation? 

Unfortunately, users of valuation services often can’t tell the difference between an unbiased valuation and a biased, or rigged one. One side may do an unbiased, fair valuation, while the other side may be biased and come up with a much higher value. From a trier of fact’s perspective, there is a low value and a high value, indicating possible bias from both experts.  What’s a trier of fact to do? In this recent article, Part One of two, from the Financial Valuation and Litigation Expert, Jim Hitchner explores “rigged” valuations by exposing the tricks of the trade in biased valuations with an emphasis on  the discount rate. Read more at http://www.valuationproducts.com/featuredarticles.html

James R. Hitchner, CPA/ABV/CFF, ASA, is Managing Director of Financial Valuation Advisors (www.finvaluation.com) and is President of The Financial Consulting Group, (www.gofcg.org). He is CEO of Valuation Products and Services (www.valuationproducts.com), which created and distributes the Business Valuation Standards Compliance Toolkit and presents monthly webinars. He is also Editor in Chief of Financial Valuation and Litigation Expert, a bimonthly journal that presents views and tools from some of the leading experts in valuation, forensics/fraud and litigation services.  Mr. Hitchner is editor/coauthor of the books Financial Valuation: Applications and Models (FVAM), Second Edition; Financial Valuation Workbook (FVW), Second Edition, and Valuation for Financial Reporting, Fair Value Measurements and Reporting: Intangible Assets, Goodwill, and Impairment (VFR), Second Edition, all published by Wiley. He is also coauthor of PPC’s Guide to Business Valuations, 19th Edition, published by Thomson Reuters. FVAM and FVW have been adopted by the AICPA for its five-day National Business Valuation School courses and by NACVA for its three-day Advanced Business Valuation courses.