Cost of Capital: Applications and Examples

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John Wiley & Sons, Nov 4, 2010 - Business & Economics - 832 pages
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Praise for "Cost of Capital," Fourth Edition

"This book is the most incisive and exhaustive treatment of thiscritical subject to date."--From the Foreword by Stephen P. Lamb, Esq., Partner, Paul, Weiss, Rifkind, Wharton & Garrison LLP, and former vicechancellor, Delaware Court of Chancery

""Cost of Capital," Fourth Edition treats both the theoryand the practical applications from the view of corporatemanagement and investors. It contains in-depth guidance to assistcorporate executives and their staffs in estimating cost of capitallike no other book does. This book will serve corporatepractitioners as a comprehensive reference book on this challengingtopic in these most challenging economic times."--Robert L. Parkinson Jr., Chairman and Chief ExecutiveOffice, Baxter International Inc., and former dean, School ofBusiness Administration and Graduate School of Business, LoyolaUniversity of Chicago

"Shannon Pratt and Roger Grabowski have consolidated informationon both the theoretical framework and the practical applicationsneeded by corporate executives and their staffs in estimating costof capital in these ever-changing economic times. It providesguidance to assist corporate practitioners from the corporatemanagement point of view. For example, the discussions on measuringdebt capacity is especially timely in this changing credit marketenvironment. The book serves corporate practitioners as a solidreference."--Franco Baseotto, Executive Vice President, ChiefFinancial Officer, and Treasurer, Foster Wheeler AG

"When computing the cost of capital for a firm, it can be fairlysaid that for every rule, there are a hundred exceptions. ShannonPratt and Roger Grabowski should be credited with not only definingthe basic rules that govern the computation of the cost of capital, but also a road map to navigate through the hundreds of exceptions.This belongs in every practitioner's collection of must-havevaluation books."--Aswath Damodaran, Professor, Stern School ofBusiness, New York University

"Pratt and Grabowski have done it again. Just when you thoughtthey couldn't possibly do a better job, they did. Cost of Capital, Fourth Edition is a terrific resource. It is without a doubt themost comprehensive book on this subject today. What reallydistinguishes this book from other such texts is the fact that itis easy to read--no small feat given the exhaustive anddetailed research and complicated subject matter. This book makesyou think hard about all the alternative views out there and helpsmove the valuation profession forward."--James R. Hitchner, CPA/ABV/CFF, ASA, ManagingDirector, Financial Valuation Advisors; CEO, Valuation Products andServices; Editor in Chief, "Financial Valuation and LitigationExpert"; and President, Financial Consulting Group

"The Fourth Edition of "Cost of Capital" continues to be a'one-stop shop' for background and current thinking on thedevelopment and uses of rates of return on capital. While it willhave an appeal for a wide variety of constituents, it should serveas required reading and as a reference volume for students offinance and practitioners of business valuation. Readers willcontinue to find the volume to be a solid foundation for continueddebate and research on the topic for many years to come."--Anthony V. Aaron, Americas Leader, Quality and RiskManagement, Ernst & Young Transaction Advisory Services

  

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Contents

CONTENTS
8
CHAPTER 2
10
CHAPTER 3
16
CHAPTER 21
21
CHAPTER 4
26
CONTENTS
33
CHAPTER 5
45
CHAPTER 6
61
CHAPTER 18
369
CHAPTER 19
403
CHAPTER 20
429
Capital Budgeting and Feasibility Studies
461
CHAPTER 23
497
CHAPTER 24
518
CHAPTER 25
531
Central Role of Cost of Capital in Economic Value Added
558

PART
85
Capital Asset Pricing Model
103
APPENDIX
146
CHAPTER 10
159
CHAPTER 11
185
CHAPTER 12
208
CHAPTER 13
232
CHAPTER 14
262
APPENDIX
279
CHAPTER 16
313
CHAPTER 17
347
CHAPTER 27
571
CHAPTER 28
587
Equity Investments
611
CHAPTER 31
624
Adjusting the Discount Rate to Alternative Economic Measures
642
PART FIVE
667
CHAPTER 36
684
Bibliography
697
Data Resources
725
International Glossary of Business Valuation Terms
738
Copyright

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About the author (2010)

Shannon P. Pratt, CFA, FASA, ARM, MCBA, CM&AA, referred to as the father of business valuations, is the author of several bestselling Wiley business valuation books and a sought-after speaker at business valuation industry conferences. He is the managing owner of Shannon Pratt Valuations, Inc., and has served as supervisory analyst for over 3,000 business valuation engagements in forty years and as an expert witness in numerous state and federal courts on contested business valuations.

Roger J. Grabowski is managing director of Duff & Phelps LLC. Roger has testified in court as an expert witness on the value of closely held businesses and business interests, matters of solvency, valuation, and amortization of intangible assets, and other valuation issues. He testified in the Northern Trust case, the first U.S. Tax Court decision that adopted the discounted cash flow method to value the stock of a closely held business with the discount rate based on the capital asset pricing model. Grabowski authors the annual Duff & Phelps Risk Premium Report.

Bibliographic information