Assignment: Prepare a capitalization rate and company specific
risk using the buildup method based on the information below.
Please justify any judgments with facts and evidence.
Risk Free Rate
____________
Equity Risk Premium
____________
Size Premium
___________
Specific Company Risk
____________
After-Tax Discount Rate
____________
Growth Rate
____________
After-Tax Capitalization Rate
_____________
Simulation Facts:
Risk-Free Rate A “safe” rate or the amount that any investor
would receive for a “risk-free” investment. A U.S. Treasury bond
with approximately 20 years remaining to maturity is the typical
benchmark. The rate of return for these types of bonds on or around
December 31, 20XX (2.47%).
An equity risk premium that represents the additional premium an
investor is receiving for the risk of investing in corporate
equities over risk-free investments located in the Duff &
Phelps, 20XX Valuation Handbook (7.00%).
A small company risk premium that represents the beta-adjusted
size premium as illustrated in the 10th deciles of Duff &
Phelps Key Variables in Estimating the Cost of Capital located in
Duff & Phelps, 20XX Valuation Handbook (11.98%)
A Company-specific risk premium is added to the discount rate.
The premium is comprised of various factors such as company
performance, management, future expectations and, the size of the
company. In this valuation analyst’s judgment, an additional ____
premium should be added to the discount rate.
Use the following subject company characteristics in your
determination of Company-Specific Risk range 1%-10%
Subject company is need of technology upgrades and retraining
staff.
Growth rate considerations select a, b, or c. Justify your
decision: a: The 5-year average rate of inflation in the United
States (1.31%).
Year Revenue
b: Average Annual Growth Rate c: Compound Growth
- Build Up Method Simulation Assignment Prepare A Capitalization Rate And Company Specific Risk Using The Buildup Method 1 (38.89 KiB) Viewed 42 times