Download Cost of Capital 2010 PDF

TitleCost of Capital 2010
TagsCapital Asset Pricing Model Cost Of Capital Beta (Finance) Discounted Cash Flow Yield (Finance)
File Size1.5 MB
Total Pages105
Table of Contents
                            COST OF CAPITALTrends, Tools, and Applications
Objectives and Outline
IntroductionObjectives
IntroductionOutline
Introduction
IntroductionJust Semantics?
Introduction Core Components
IntroductionBuild-Up Method
IntroductionModified Capital Asset Pricing Model
Risk-free Rate
Risk-free RateOverview
Risk-free RateRates and Sources
Risk-free RateApplication
Risk-free RateEconomic Considerations
Slide Number 15
Risk-free RateAlternatives?
Equity Risk Premium
Equity Risk PremiumThe Basics
Equity Risk PremiumEstimation Sources
Equity Risk PremiumMorningstar Historical Equity Risk Premium
Slide Number 21
Slide Number 22
Equity Risk PremiumMorningstar Historical Equity Risk Premium
Equity Risk PremiumMorningstar Supply Side Equity Risk Premium
Equity Risk PremiumMorningstar Supply Side Equity Risk Model
Equity Risk PremiumMorningstar Supply Side Equity Risk Model
Slide Number 27
Equity Risk PremiumDuff & Phelps
Equity Risk PremiumDuff & Phelps
Slide Number 30
Equity Risk PremiumSurvey Investors
Equity Risk PremiumIs ERP Conditional?
Slide Number 33
Equity Risk PremiumImplied Equity Risk Premium
Slide Number 35
Equity Risk PremiumSummary and Application
Slide Number 37
Size Premium
Size Premium Overview
Size PremiumMorningstar Overview
Size PremiumMorningstar Overview
Size PremiumMorningstar Overview
Size PremiumMorningstar Data
Size PremiumMorningstar’s 10th Decile
Size PremiumMorningstar Data (10th Decile Breakdown Included)
Size PremiumCriticisms of Morningstar
Size PremiumDuff & Phelps Overview
Size PremiumDuff & Phelps Overview
Size PremiumDuff & Phelps Overview
Size PremiumDuff & Phelps Overview
Size PremiumDuff & Phelps Data
Size PremiumApplication of Duff & Phelps
Size PremiumDuff & Phelps – Build-up Example, book value
Size PremiumApplying Duff & Phelps - Caveats
Size PremiumApplying Duff & Phelps - Caveats
Size PremiumApplying Duff & Phelps – Caveats
Size PremiumDuff & Phelps – Consistency Adjustments
Size PremiumComparison of the Studies
Industry Adjustments
Industry AdjustmentsOverview
Industry AdjustmentsMorningstar IRP
Industry AdjustmentsMorningstar IRP
Industry AdjustmentsMorningstar IRP Application
Industry AdjustmentsMorningstar IRP Criticisms
Industry AdjustmentsMorningstar IRP Company List
Industry AdjustmentsBeta Overview
Industry AdjustmentsBeta Sources
Industry AdjustmentsBeta Market Proxies
Industry AdjustmentsBeta Time Period
Industry AdjustmentsBeta Time Interval/Frequency
Industry AdjustmentsBeta Normalization Adjustments
Industry AdjustmentsWhy do we care?
Industry AdjustmentsBeta – Levered or Unlevered
Industry AdjustmentsUnlevering Beta
Industry AdjustmentsRelevering Beta
Industry AdjustmentsBeta Application
Company Specific Risk Premium
Company Specific Risk PremiumOverview
Company Specific Risk PremiumProfessional Judgment
Company Specific Risk PremiumProfessional Judgment
Company Specific Risk PremiumProfessional Judgment
Company Specific Risk PremiumProfessional Judgment
Company Specific Risk PremiumQuantitative Methods
Company Specific Risk PremiumQuantitative Methods
Company Specific Risk PremiumQuantitative Methods
Company Specific Risk PremiumQuantitative Methods
Company Specific Risk PremiumQuantitative Methods
Company Specific Risk PremiumApplication
The Big Picture
Cost of EquityPutting the Pieces Together
Cost of EquityPutting the Pieces Together
WACCOverview
WACCCapital Structure
WACCCost of Debt
Discounting vs. CapitalizingOverview
Discounting vs. CapitalizingGrowth Rates
Discounting vs. CapitalizingGrowth Rates
Discounting vs. CapitalizingGrowth Rates
Cost of CapitalApplication
Special Topics
Special Topics
Special TopicsMid-period Adjustments
Special TopicsPrivate Company Cost of Capital Survey
Slide Number 104
THANK YOU!
                        
Document Text Contents
Page 1

COST OF CAPITAL
Trends, Tools, and Applications

Jason MacMorran

Page 2

Objectives and Outline

Page 52

Size Premium
Application of Duff & Phelps

• Build-up Example - traditional

• Build-up Example – Duff & Phelps

• RM+S = ERP plus risk premium for size, or premium
over risk-free rate

COE = Rf + ERP + SP + IRP+ CSRP

COE = Rf + RM+S + IRP+ CSRP

Page 53

Size Premium
Duff & Phelps – Build-up Example, book value

• Select your ‘portfolio’ by size
• Assume book value is $25M, therefore portfolio 25

• Find appropriate risk premium
• Smoothed average risk premium for 25th portfolio = 11.08%
• Arithmetic average risk premium for 25th portfolio = 11.24%

• Regression formula for smoothed premiums available to
extrapolate risk premiums
• Smoothed premium = 15.190% - 2.296% x log (book value)
• 15.190% - 2.296% x log(25) = 11.98%

Page 104

Questions and Comments

Jason MacMorran, CPA/ABV/CFF, CVA, MS

225.408.4766

[email protected]

http://www.pncpa.com/cnt_speaking-engagements.asp

Page 105

THANK YOU!

Similer Documents