Is calculating the ERP an ‘exercise in futility’?

BVWireIssue #50-3
November 15, 2006

Gary Trugman (www.trugmanvaluation.com) was only half-kidding when he said that in calculating the equity risk premium, he usually starts with 20%—and adds a bit more if the subject company is risky, and takes it down if it’s not. That way, he avoids what sometimes feels like “an exercise in futility.”

“There’s a grain of truth in that,” agreed Jim Hitchner, who joined Gary and Jim Alerding in last week’s BVR Telephone conference on Discount and Capitalization Rates, one of our best-attended audio-seminars. The conference CD & transcript make a great training tool for BV analysts and are available here.

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