(Part IV of IV) This is the final article of the four-part series that sets forth best practices for estimating the company-specific risk premium. This discussion of the series summarizes best practices about the analyst’s conduct of the functional analysis as one component in developing the CSRP estimate. [su_pullquote align=”right”]Resources: Best Practices for Estimating the Company-Specific Risk Premium (Part I of IV) Best Practices for Estimating the Company-Specific Risk Premium (Part II of IV) Best Practices for Estimating the Company-Specific Risk Premium (Part III of IV) [/su_pullquote] Introduction Valuation analysts (analysts) often apply income approach business valuation methods to value…
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(Part III of IV) This is the third of a four-part article that sets forth best practices for estimating the company-specific risk premium. This part of the discussion describes the various empirical data sources that analysts may consider as proxies—or benchmarks—or approximations—in developing the CSRP estimate. [su_pullquote align=”right”]Resources: Best Practices for Estimating the Company-Specific Risk Premium (Part I of IV) Best Practices for Estimating the Company-Specific Risk Premium (Part II of IV) [/su_pullquote] Introduction Estimating the cost of capital is one component of private company business valuation performed for financing, transaction, taxation, business planning, financial accounting, litigation, and other purposes.…
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(Part II of IV) This is the second of a four-part article that sets forth best practices for estimating the company-specific risk premium. The first part of this series summarized where and how the CSRP applies in the various generally accepted cost of capital measurement models. This second part summarizes (1) the concepts of systematic risk and unsystematic risk and (2) the considerations of unsystematic risk in the analyst’s CSRP estimate. [su_pullquote align=”right”]Resources: Best Practices for Estimating the Company-Specific Risk Premium (Part I of IV) [/su_pullquote] Introduction This discussion is the second of a four-part series that summarizes best practices…
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(Part I of IV) This is a four-part article that sets forth best practices for estimating the company-specific risk premium. The identification and quantification of alpha—or the subject-specific risk component—is sometimes a controversial issue in the private company valuation. This discussion summarizes best practices on what is included in—or should be considered in—the analysis of this Ke alpha component (or unsystematic risk component). These best practices discussion is presented in four parts. The first part of the discussion focuses on the factors that analysts may consider in developing the alpha estimate when selecting a Ke for a private company valuation.…