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The Market Price of Risk: Quantifying a COVID-19 Equity Risk Premium Using High-Yield Bond Pricing

The authors demonstrate how a high-yield option-adjusted spread is used when doing appraisals of private companies while considering the market volatility and economic slowdown caused by the COVID-19 pandemic.

D&P lowers U.S. normalized risk-free rate to 2.5%

Duff & Phelps has decreased its recommended U.S. normalized risk-free rate from 3.0% to 2.5% for use as of June 30, 2020, according to a client alert.

Using a size premium could trigger Daubert trouble, says new article

Adding a size premium to the cost of equity could make an expert’s testimony subject to a Daubert challenge, says Clifford Ang (Compass Lexicon) in a recent article.

More concern about the validity of the size premium factor

Most business valuers consider a size premium when calculating cost of capital for financial reporting purposes.

New business valuation resource from Professor Fernandez captures low market returns

Pablo Fernandez continues to release research that may assist UK business valuers working on reports with valuation dates in Q1 2020.

Alternate Valuation Methods in the Era of COVID-19

COVID-19 has substantially affected the financial and economic characteristics of privately held and publicly traded businesses throughout the U.S. In this presentation, the presenters will address the valuation impact of COVID-19 and the potential distortions that can occur when traditional valuation approaches and methods are mechanically applied. In the current environment, it is important for analysts to think “outside-the-box” when performing business valuations with valuation dates occurring during the first and second quarter of 2020.

BVU News and Trends May 2020

A monthly roundup of key developments of interest to business valuation experts.

Duff & Phelps raises US ERP from 5.0% to 6.0% for 1Q valuation dates

D&P has increased its recommended U.S. equity risk premium (ERP) from 5.0% to 6.0% for use as of 25 March 2020.

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

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.

BVU News and Trends March 2020

A monthly roundup of key developments of interest to business valuation experts.

Best Practices – Thought Leadership in Valuation, Damages, and Transfer Price Analysis

March 2020 Hardcover

Robert F. Reilly, Robert P. Schweihs

Best Practicesincludes more than 1,200 pages of thought leadership on a wide range of topics, including the valuation of private company securities and intangible assets, valuation for property tax purposes, valuation for ESOPs, fair value measurement for financial accounting purposes, transfer price analysis, and economic damages measurement. Learn more >>

Valuation underpinning contested stock sale reflects fair value, Court of Chancery says

In a breach of fiduciary duty action arising out of a controversial stock sale, the Delaware Court of Chancery dismissed the plaintiff’s attacks on the underlying valuation, noting the appraiser was “exceptionally knowledgeable about the industry” and held “informed beliefs” as to the company’s specific structure.

Two new resources for 2020 UK ERP, risk-free rate, and other indicators

Pablo Fernandez, professor of finance at the IESE Business School, is surveying business valuation professionals in the UK to determine what cost of equity assumptions they are using for 2020.

Untested beta calculation KOs expert’s credibility and fair value conclusion

In a statutory appraisal case with several twists, the Delaware Court of Chancery recently agreed with the parties’ experts that a discounted cash flow analysis was the only way to determine fair value while rejecting, unequivocally, the company expert’s novel approach to calculating beta.

Current BUM and CAPM cost of capital rates now available from BVR’s Cost of Capital Pro

Year-end 2019 data are now available in BVR’s Cost of Capital Professional.

YE2019 data are now in the Cost of Capital Professional

Year-end 2019 data, including risk-free rates, industry risk premia, equity risk premia, and size premia, are now available in BVR’s Cost of Capital Professional platform.

BVU News and Trends January 2020

A monthly roundup of key developments of interest to business valuation experts.

Manichaean Capital, LLC v. SourceHOV Holdings, Inc.

In appraisal proceeding, Court of Chancery adopts petitioner expert’s DCF-based model for calculating fair value, making slight adjustment to expert’s size premium; on beta calculation, court finds respondent expert’s novel approach “does not survive judicial scrutiny” and raises Daubert issues.

Novel Beta Method Occasions Rebuke From Court of Chancery in Appraisal Case

In appraisal proceeding, Court of Chancery adopts petitioner expert’s DCF-based model for calculating fair value, making slight adjustment to expert’s size premium; on beta calculation, court finds respondent expert’s novel approach “does not survive judicial scrutiny” and raises Daubert issues.

Implied ERP at 5.2% per Damodaran’s data update

Professor Aswath Damodaran (New York University Stern School of Business) has done his annual posting of data updates on his website that include risk-free rates, equity risk premiums, corporate default spreads, corporate tax rates, country risk premiums, and other data.

Coster v. UIP Companies, Inc.

In breach of fiduciary duty action, court says stock sale passes enhanced fairness review; appraiser valuing real estate investment services company before sale is eminently qualified and knowledgeable about industry; capitalized cash flow method “generated a reliable indicator” of company’s value.

Valuation Underlying Controversial Stock Sale Satisfies Highest Scrutiny

In breach of fiduciary duty action, court says stock sale passes enhanced fairness review; appraiser valuing real estate investment services company before sale is eminently qualified and knowledgeable about industry; capitalized cash flow method “generated a reliable indicator” of company’s value.

The most common error in DCF analyses? Following the recipe.

Pablo Fernandez, the professor of finance at IESE Business School, remains one of the most thoughtful observers of business valuation practices.

Pablo Fernandez on common errors using WACC

A new paper presents a real valuation a well-known investment bank performed using two usual methods that are supposed to provide the same value.

New Meta-Analysis Study Reveals Diminished Size Premium

There have been many studies on the size premium but with conflicting results. Now, the first “meta-analysis” of the size premium provides an estimate that is smaller than what many people believe, according to a new paper.

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