The Tax Cuts and Jobs Act puts new limitations on the deductibility of interest expense, so this would affect a firm’s cost of capital. But the typical firm in the architecture, engineering, and environmental consulting industries (A/E firms) is lightly leveraged, “so this is unlikely to be a factor in most cases,” says Ian Rusk
of Rusk O’Brien Gido + Partners in a recent Perspective.
“The larger consideration will be whether baseline interest rates will increase in 2018, and by how much. In the latest meeting of the Federal Reserve’s Open Market Committee, the target range for the federal funds rate was increased by 0.25%,” he says. “Inflationary concerns could spur further interest rate hikes in 2018, with the ultimate effect being a higher cost of capital, slightly offsetting the impact of increased earnings on company values.” Rusk O’Brien Gido + Partners publishes the A/E Business Valuation and M&A Transaction Study,
which includes data from distinct stock transactions along with supplemental data from publicly available sources.
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