Do you have a Rube Goldberg cost of capital process?
Wildly complicated gadgets designed to do very simple tasks was the specialty of Rube Goldberg, the Pulitzer Prize-winning cartoonist, sculptor, author, engineer, and inventor.
The Legend of Weighted Average Return on Assets and Benchmarking Purchase Price Allocation Data
The author's research shows that only current assets, non-competes, and customer relationships have any predictability to WACC in limited industries. In general, when intangibles have significance, their coefficients are negative, which reduces WACC and implied risk. This finding supports the claim by Lev and Gu (2008) that intangibles are important assets, which reduce, not increase risk. The concept that intangible always should have a premium above WACC is unfounded, and the premise of ARM 34 that intangibles are ancillary assets is outdated. The author suggests and alternative method to use purchase price allocation data to support the selection of premiums above WACC.
Upgrade to the Cost of Capital Professional highlights free webinar
A number of new enhancements to BVR’s Cost of Capital Professional platform were explained during a recent free webinar on March 6.
Global BVU News and Trends March 2019
Business valuation news from a global perspective.
BVU News and Trends March 2019
A monthly roundup of key developments of interest to business valuation experts.
Bygone size effect resurfaces in highly volatile times, per new research
Although most empirical studies find that the size effect has disappeared since the early 1980s, it shows up during times of high macroeconomic volatility, according to a new paper.
Global BV News: Capital budgeting decision-making in Pakistan
Pakistani-listed firms are using discounted cash flow methods of capital budgeting and preferring net present value over internal rate of return, according to a research paper.
YE2018 data—plus enhancements—now in the Cost of Capital Professional
Year-end 2018 equity risk premia and size premia are now available in BVR’s Cost of Capital Professional platform.
Letter to the Editor: Comments on the Cost of Capital Professional
A user who tested out BVR’s new platform for estimating the cost of capital has some very thought-provoking comments on the use of historical data for the equity risk premium.
Response to Eric Nath’s Comments on the Cost of Capital Professional
Comments in response to the need to develop a “truly forward-looking required rate of return system that gives appraisers an understanding of how to estimate cost of capital for private companies and interests in private companies.”
BVU News and Trends February 2019
A monthly roundup of key developments of interest to business valuation experts.
Damodaran posts his 2019 data updates
Professor Aswath Damodaran (New York University Stern School of Business) has so far posted a series of five data updates on his blog, “Musings on Markets.”
Business Valuation Review spotlights the ‘size effect’
If you’re a subscriber to BVResearch Pro, you have access to a vast amount of research material, including the full archive of Business Valuation Review, the journal of the American Society of Appraisers (ASA).
Improving on historical data for the cost of capital
There are shortcomings to using historical data in developing an equity risk premium (ERP) when estimating the cost of capital, points out Eric Nath (Eric Nath & Associates LLC) in the February issue of Business Valuation Update.
Business Valuation Year in Review 2018
The new tax law, lively debates, new guidance, a strong protest, and a simpler approach to estimating cost of capital were just some of the highlights in the business valuation profession during 2018.
Takeaways From the 2018 ASA Advanced BV Conference
A wrap-up of the ASA’s Joint ASA 2018 Advanced Business Valuation and International Appraisers Conference in Anaheim, Calif.
Fernandez on badly explained finance topics
A number of topics relevant to business valuers including CAPM, WACC, betas, ERP, and returns are in the latest paper by Pablo Fernandez (University of Navarra, IESE Business School), "18 Topics Badly Explained by Many Finance Professors."
Creative Destruction and the Perpetual Growth Assumption
In determining terminal value in a discounted cash flow (DCF) valuation, it is usually assumed that a mature company will grow at a constant rate in perpetuity. The impact of creative destruction and disruptive innovation interrupts and reverses historical growth patterns. If to the extent that the assumption of constant perpetual growth is invalid, the commonly used growth model in DCF analyses will overstate terminal value and cause overvaluations. The perpetual growth concept needs to ...
Have We Lost the Forest For the Trees?
When BVR recently announced the launch of the Cost of Capital Professional, the author was pleased with its back-to-basics approach to estimating the cost of equity. The growing complexities of various aspects of business valuation prompted him to write this article, which speaks to the need to preserve the “art” of valuation.
Expert’s Detailed Risk Analysis Bolsters Use of Deep Discount in Law Firm Valuation
In buyout dispute over law firm interest, court credits firm’s expert, noting his extensive relevant experience, his taking care to value interest under fair market value standard, as required by the partnership agreement, and his detailed risk analysis to support a deep discount.
Fredericks Peebles & Morgan LLP v. Assam
In buyout dispute over law firm interest, court credits firm’s expert, noting his extensive relevant experience, his taking care to value interest under fair market value standard, as required by the partnership agreement, and his detailed risk analysis to support a deep discount.
Twelve Practical Ideas From NACVA’s 2018 Annual Conference
There was no shortage of good ideas at the annual conference of the National Association of Certified Valuators and Analysts (NACVA) in Las Vegas this past June.
A Veteran Valuer Looks at the BV Profession
The recent decision by the AICPA to allow non-CPAs to get the ABV credential is one of the issues a seasoned valuation expert examines in this frank look at the BV profession.
[More] BV buzz from NACVA’s annual conference
In the last issue, we included some takeaways from some of the sessions we attended at the annual conference of the National Association of Certified Valuators and Analysts (NACVA) in Las Vegas.
BV buzz at NACVA’s annual conference
BVWire was in Las Vegas last week at the annual conference of the National Association of Certified Valuators and Analysts (NACVA).