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/.