Cost of capital estimation has long been recognized as one of the most critical elements in business valuation, capital budgeting, feasibility studies, and corporate finance decisions. It is also the most difficult procedure to perform and assess. In the second edition of Cost of Capital: Estimation and Applications, renowned author and valuation expert Shannon Pratt addresses the most controversial issues and thorny problems in estimating the cost of capital.
In a clear, concise, and easily understandable manner, he tackles all of the problems in calculating rates of return and offers sensible, well-thought-out solutions that apply to small business and midsize companies, as well as to multibillion-dollar corporations.Dr. Pratt lays out the basic tools that anyone can use immediately when estimating cost of capital or reviewing someone elses estimate. He presents basic theory and explains how it is used in valuation of businesses and business assets, as well as in capital expenditure decision making, and he provides clear explanations for each of the mathematical formulas used.
Citing comprehensive sources of information, Dr. Pratt also offers clear and complete definitions of all common terminology used in cost of capital estimation. He points out the errors that are common to the process, and gives practical advice on how to avoid them when making an estimation and how to identify them in other peoples work. The revised and expanded Second Edition offers several new features, including:* A new chapter covering cost of capital in Economic Value Added (EVA)* A new chapter on reconciling cost of capital in the income approach with valuation multiples in the market approach* An expanded chapter on Handling the Discount for Marketability, including sources of restricted stock and pre-IPO studies* Expanded coverage of cost of capital in the courts* New exhibits to reflect the new 10a and 10b breakdowns of Ibbotson Associates 10th decileGenerously supplemented with tables, graphical diagrams, and step-by-step examples, Cost of Capital is an indispensable resource for business appraisers, valuation professionals, and consultants attached to accounting firms, as well as corporate finance executives, investment bankers, venture capitalists, private equity firm executives, and others who must make important decisions based on their understanding of cost of capital estimations.See all Editorial Reviews