Cost of capital is the theme of the March 2014 issue of Business Valuation Update. Here’s what you’ll see:
- The Implied Private Company Pricing Model (IPCPM): Ko = (FCFF1/P) + g (Bob Dohmeyer, ASA; Peter Butler, CFA, ASA; Rod Burkert, MBA, CPA/ABV, CVA, ASA). The authors have developed a model designed to be more reliable than the build-up method for estimating the cost of capital of a small privately held business. This model uses the authors’ new Implied Private Company Pricing Line 2.0 (IPCPL).
- BV Community Reacts to New Cost of Capital Tool (BVR Editor). Feedback—both positive and negative—was swift from the valuation community on the implied private company pricing line (IPCPL), a new method to estimate the cost of capital for private companies.
- IPCPL Developers Field Queries on the New Model’s Underlying Data (BVR Editor). The IPCPL developers answer some of the many questions about the method as a whole and the underlying transaction data it uses.
- It’s in There! So What Else Is Included in Your Estimated Cost of Capital? (Ted Israel, CPA/ABV/CFF, CVA). A few elements of valuing private companies are frequently adjusted for as a separate factor—but they also may already be embedded in the analyst’s estimated cost of capital.
- Does the Size Effect Still Exist? New Analysis From Pratt and Grabowski (BVR Editor). In the upcoming fifth edition of their essential book, Cost of Capital: Applications and Examples, Shannon Pratt, FASA (Shannon Pratt Valuations), and Roger Grabowski, FASA (Duff & Phelps), reveal new analysis that examines the existence of the size premium.
To read these articles—plus a digest of the latest court cases—see the February issue of Business Valuation Update (subscription required).
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