D&P increases recommended U.S. ERP to 6.0%

BVWireIssue #211-1
April 1, 2020

cost of capital
cost of capital, discount rate, private company valuation, risk analysis, cost of equity, equity risk premium (ERP)

Duff & Phelps has increased its recommended U.S. equity risk premium (ERP) from 5.0% to 6.0% for use as of March 25, 2020, according to a client alert. This new rate, used in conjunction with a normalized risk-free rate of 3.0% (reaffirmed), implies a “base” U.S. cost of equity capital estimate of 9.0% (6.0% + 3.0%). “To be clear, this means that for critical quarter-end valuations dated March 31, 2020, the recommended ERP is 6.0%,” the firm says. “However, several economic and financial risk factors that we evaluate were already present during the week of March 9, 2020.”
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