On November 13, a free one-hour webinar will be presented, Guide to Industry Cost of Capital: The Latest in the Duff & Phelps Trilogy, featuring James Harrington (Duff & Phelps). Harrington will give an in-depth look at what's included in the new 2014 Valuation Handbook - Industry Cost of Capital and how appraisers can put it to work.
In a recent interview in the November issue of Business Valuation Update (subscription required), Harrington was asked: If one has the Valuation Handbook - Guide to Cost of Capital to develop company-level cost of equity estimates, why is there a need for a second book on industry cost of capital? “Several reasons,” he says. “First of all, valuation is an inherently comparative process—just about any analysis boils down to trying to compare one thing to another. For example, if you’ve developed a cost of equity estimate for the subject company, a natural first question you might get is: ‘How does my own analysis of the subject company compare to the subject company’s peers, or industry?’ A normal and prudent step in any analysis is to perform some benchmarking as a ‘reasonableness’ test.”
He continues: “The valuation analyst will likely find the statistics presented in the new book to be a very useful indicator for benchmarking, augmenting, and providing additional support for his or her own custom analyses of the industry in which a subject business, business ownership interest, security, or intangible asset resides. Also, the original guide does not have betas for CAPM. The industry handbook has industry-level betas that can be used in a CAPM analysis. Those betas can also be used in the online Risk Premium Calculator.”
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