Cost of capital applications and examples, 5th edition

3GFFIRS 02/24/2014 18:16:41 Page i Cost of Capital 3GFFIRS 02/24/2014 18:16:41 Page ii 3GFFIRS 02/24/2014 18:16:41 Page iii Cost of Capital Applications and Examples Fifth Edition SHANNON P PRATT ROGER J GRABOWSKI 3GFFIRS 02/24/2014 18:16:41 Page iv Cover image:  iStock / Atropat;  iStock / fenix1984 Cover design: Wiley Copyright  2014 by John Wiley & Sons, Inc All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 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special, incidental, consequential, or other damages For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002 Wiley publishes in a variety of print and electronic formats and by print-on-demand Some material included with standard print versions of this book may not be included in e-books or in print-on-demand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com For more information about Wiley products, visit www.wiley.com ISBN 978-1-118-55580-4 (Hardcover) ISBN 978-1-118-85280-4 (ePDF) ISBN 978-1-118-85282-8 (ePub) Printed in the United States of America 10 3GFFIRS 02/24/2014 18:16:42 Page v To our families for their support and encouragement, without which our careers and this book would not have been possible Millie Son Mike Pratt Daughter Susie Wilder Daughter-in-law Barbara Brooks Son-in-law Tim Wilder Randall and Kenny John, Calvin, and Meg Portland, OR Springfield, VA Son Steve Pratt Daughter-in-law Jenny Pratt Addy and Zeph Portland, OR Daughter Georgia Senor Son-in-law Tom Senor Elisa, Katie, and Graham Fayetteville, AR Mary Ann Son Roger Grabowski Jr., MA Daughter Sarah Harte, MA Daughter-in-law Misako Son-in-law Michael Harte, MS, JD Takahashi Kevin and Rosemary Rob, Sayaka, and Asami Arlington Heights, IL Tokyo, Japan Daughter Julia Grabowski, MD San Diego, CA Son Paul Grabowski, MS PhD Daughter-in-law Melissa Ruiz, MD Casey and Louis Chicago, IL 3GFFIRS 02/24/2014 18:16:42 Page vi 3GFTOC 02/24/2014 18:12:28 Page vii Contents About the Authors xiii Foreword xxiii Preface xxv Acknowledgments xxix PART ONE Cost of Capital Basics CHAPTER Defining Cost of Capital CHAPTER Introduction to Cost of Capital Applications: Valuation, Project Selection, and Ratemaking 11 CHAPTER Net Cash Flow: The Preferred Measure of Economic Income 17 APPENDIX 3A Alternative Measures of Economic Income 30 CHAPTER Discounting versus Capitalizing 36 APPENDIX 4A Equivalency of Capitalizing Residual Income 56 CHAPTER Discounting—Beyond the Basics 60 CHAPTER Relationship between Risk and the Cost of Capital 70 vii 3GFTOC 02/24/2014 18:12:29 Page viii viii CONTENTS PART TWO Estimating the Cost of Equity Capital CHAPTER Risk-free Rate 89 91 CHAPTER Equity Risk Premium 110 APPENDIX 8A Deriving ERP Estimates 141 APPENDIX 8B Other Sources of ERP Estimates 173 CHAPTER Build-up Method 177 CHAPTER 10 Capital Asset Pricing Model 189 CHAPTER 11 Beta: Differing Definitions and Estimates 202 APPENDIX 11A Examples of Computing OLS Beta, Sum Beta, and Full-information Beta Estimates 225 APPENDIX 11B Estimating Beta: Interpreting Regression Statistics 234 CHAPTER 12 Unlevering and Levering Equity Betas 243 CHAPTER 13 Criticism of CAPM and Beta versus Other Risk Measures 269 APPENDIX 13A Example of Computing Downside Beta Estimates 298 CHAPTER 14 Size Effect 301 3GFTOC 02/24/2014 18:12:29 Page ix Contents ix CHAPTER 15 Criticisms of the Size Effect 331 APPENDIX 15A Other Data Issues Regarding the Size Effect 363 CHAPTER 16 Company-specific Risk 372 CHAPTER 17 Distressed Businesses 400 APPENDIX 17A Cost of Capital and the Valuation of Worthless Stock 428 CHAPTER 18 Other Methods of Estimating the Cost of Equity Capital 444 CHAPTER 19 Using the Duff & Phelps Risk Premium Report Data 471 APPENDIX 19A Examples Using the Duff & Phelps Risk Premium Report Data 499 PART THREE Estimating the Overall Cost of Capital 519 CHAPTER 20 Other Components of a Business's Capital Structure 521 CHAPTER 21 Weighted Average Cost of Capital 544 APPENDIX 21A Iterative Process Using CAPM to Calculate the Cost of Equity Component of the Weighted Average Cost of Capital 576 PART FOUR Estimating the Cost of Capital—Non-Freely Traded Interests 609 CHAPTER 22 Handling Discounts for Lack of Marketability and Liquidity for Minority Interests in Operating Businesses 611 3GFTOC 02/24/2014 18:12:29 Page x x CONTENTS CHAPTER 23 Cost of Capital of Family Holding Company Interests 630 CHAPTER 24 The Private Company Discount for Operating Businesses 650 CHAPTER 25 Cost of Capital of Interests in Pass-through Entities 663 CHAPTER 26 Relationship between Risk and Returns in Venture Capital and Private Equity Investments 680 CHAPTER 27 Cost of Capital for Closely Held Businesses 693 PART FIVE Corporate Finance Officers: Using Cost of Capital Data 711 CHAPTER 28 Capital Budgeting and Feasibility Studies 713 CHAPTER 29 Cost of Capital for Divisions and Reporting Units 722 CHAPTER 30 Cost of Capital for Fair Value Reporting of Intangible Assets 757 CHAPTER 31 Cost of Capital in Evaluating Mergers and Acquisitions 779 CHAPTER 32 Cost of Capital in Transfer Pricing 793 APPENDIX 32A Cost of Capital in Transfer Pricing Example 822 CHAPTER 33 The Role of the Cost of Capital in EVA and in Corporate Value-Based Management 825 PART SIX Other Cost of Capital Considerations CHAPTER 34 Estimating Economic Income 839 841 3GBINDEX02 02/24/2014 17:53:29 Page 1297 Index size premia as beta adjusted, 313–316 size premia studies, 308–309, 310, 311, 329–330 Solvency Score, 412, 414 Valuation Yearbook, 302, 336–338 See also Ibbotson Stocks, Bonds, Bills and Inflation (SBBI) Valuation Yearbook Moroz, Max, 174 Morris, James R., 42, 579, 605, 859, 860 Morrison, William, 8, 861 Moskowitz, Tobias, 388, 681 Mossin, Jan, 270 Most advantageous market, 730–731 Moul, Paul, 1004 Mroczek, Magdalena, 152 MSCI Global Equity Indices, 78, 1027, 1029, 1031, 1032, 1034, 1035, 1036, 1037, 1038 Mueller, Glenn R., 1096, 1110 Muhlhauser, Katja, 1021 Mulford, Charles, 534 Multifactor models: arbitrage pricing theory, 451–455 beta for, 1187 comparison of, 447–451 Fama-French three-factor model, 445–447 market-derived capital pricing model, 455–458 overview of, 445, 467–468 yield spread model, 458 Multilateral Investment Guarantee Agency, 1048 Multinational corporations, 974 Multiperiod excess earnings method (MPEEM), 764–765, 812 Multistage DCF method, 1009–1010 Municipal bond market, 645 Murray, Roger F., 159, 175, 426 Murray, Scott, 388 Muth, John F., 1211 Myers, James, 467 Myers, Linda, 467 Myers, Stewart C., 5, 12, 67, 86, 173, 374, 460, 526, 528, 535, 715, 999, 1157 1297 Nagel, Gregory Leo, 714 Naik, N Y., 640 Nand, Billy, 791 Nanda, Dhananjay, 529 Naranjo, Andy, 1120 Narayanan, P., 411 National Association of Real Estate Investment Trusts, 1087, 1126 National Conference of Commissioners on Uniform State Laws, 937 Neely, Charles, Jr., 986 Negative operating net cash flows, 407–408 Nejadmalayeri, Ali, 447 Nekrasov, Alexander, 296 Nelson, Charles R., 129 Net asset value method, 958, 1132 Net cash flows: adjusting for risk differences in, 377–378 alternative formulas for, 842 capital budgeting and, 716 to common equity capital, 18–22 converting from capitalizing, to capitalizing another economic income measure, 882–883 DCF method and, 716, 718 defined, 12, 17–18 duration of cash flows, 116–117 errors in estimating, 1196–1197 estimating alternative, 856–857 global cost of capital models, 1048–1049 to invested capital, 22–24 measurement of riskiness of, 80–82 normalizing in terminal year, 1196 as preferred measure of economic income, 27–29 as probability-weighted expected values, 25–27 for real estate entities, 1098, 1122–1123, 1125 risky, valuation of, 72–74 substituting EBITDA for, 1182–1183 testing estimates of, 849–856 Net operating income, 1078 Net present value, EVA as measure of, 830–833 3GBINDEX02 02/24/2014 17:53:29 Page 1298 1298 Netter, Jeffry, 660 Net working capital, 762, 769, 847–848 Ng, David T., 80, 136, 162, 224 Nguyen, Thuy Thu, 1049 NICE method See Nonmarketable investment company evaluation (NICE) method Niculita, Alina, 8, 80, 206, 248, 701, 864, 875, 915, 930, 968, 1181 Nieberding, James F., 934 Nielsen, Caren Yinxia G., 421 Nilsson, Birger, 642, 644 Nissim, Doron, 29, 843 Noncash charges, 846–847 Non-infringing alternatives, 942 Nonmarketable investment company evaluation (NICE) method: for estimating cost of illiquidity, 636–638 overview of, 631–632, 649 Nonpublic companies: computing WACC for, 562–564 estimating size premia for, 327–329 Normal distribution, 284, 413, 437, 640 Normalized implied ERP estimate, 167 Normalizing expenses, 1209 North American Industry Classification System (NAICS) codes, 703 Nowak, Eric, 691 Nunes, Carla, 722, 110 Nussbaum, Ross, 1099 Nyborg, Kjell G., 575, 895 NYSE Index, 111, 112, 113, 203 NYSE MKT, 308 Oak, Brian, 530 O’Brien, Thomas, 463, 1014, 1021, 1038–1039 OECD 2010 Report on the Attribution of Profits to Permanent Establishments, 815, 816–817 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration, 794 Ofer, Aharon R., 79 Ofer, Roni, 29 Off-balance-sheet assets, 430 Off-balance-sheet financing, 1207 INDEX Off-balance-sheet liabilities, 430 Officer, Micah S., 655, 656 Officer study, 655–656 Ogier, Tim, 253 O’Hara, M., 678 Ohlson, James, 33, 412 OLS beta, 204–205, 207, 212, 213, 215, 216, 225–229 OLS Betas, Sum Betas, and Annual Betas, 315 OLS Betas, Sum Betas, and Downside Betas, Comparison of, 291 Olsen, R., 346 OLS method, 214, 332–333 OLS regression, 205, 207, 234, 682, 724 Operating beta, 261–262 Operating income and expense statement, 1080, 1081 Operating lease capitalization, 530–534 Operating risk, 223, 243, 261, 420 Operating segment, 727 Opler, T C., 401 Oppenheimer, Peter, 1093 Optimal capital structure, 550–556 Optimization premium, 735 Option models, 624, 626, 637 Options, estimating DLOM using, 620–626 Option valuation and distressed businesses, 405–407 Ordinary least squares See OLS regression Organization for Economic Cooperation (OECD) guidelines, 794 Orpurt, Steven, 28 Ortiz-Molina, Hernan, 390 O-score, 412, 414 Overall cost of capital, Overseas Private Investment Corporation, 1048 Ownership, levels of value in terms of characteristics of, 862 See also Minority ownership interests Pacific Security Capital, 1093 Paglia, John, 657, 658, 697, 698, 699 Paglia and Harjoto study, 657–658 Palkar, Darshana D., 469 3GBINDEX02 02/24/2014 17:53:29 Page 1299 Index Pandit, Shail, 530 Park, James R., 1119 Parsons, Christopher, 575 Parsons, John, 1121 Parsons, John F C., 1121 Partington, Graham, 887 Pass-through entities (PTEs): characteristics of, 665 cost of capital for, 677 Delaware court and, 670–671 family law court and, 671–672 Gross decision and, 665–670 market evidence of value of interests in, 672–676 overview of, 663–665, 679 REITs as, 1089 risks of investments in, 677–678 valuing interests in, 889–890 Pastor, Lubos, 129, 155, 639, 640 Patel, Niel, 91, 110, 202, 269, 301, 372, 444, 471, 499, 544, 1011, 1084 Patent infringement damages, 933–934, 940–942 Pattanaik, Sitikantha, 1051 Patterson, Cleveland S., 217 Paudyal, Krishna, 660 Pavlov, Andrey, 1121 PayScale.com, 705 PBO (projected benefit obligation), 540–542 PCD See Private company discount PCOC (private cost of capital) model, 697–700 Peare, Paula, 209, 210 Pearson, James D., 314 Pedersen, Lasse Heje, 640, 641 Peek, Erik, 477, 1041 Peer Group Beta, 216 Peer group equity beta, 216 PEG ratio, 462 Pending lawsuits, 183, 393 Pending regulatory changes, 183, 393 Peng, Liang, 143, 1120 Penman, Stephen H., 33, 42, 59, 176, 843 Pennacchi, George, 97 Pepperdine University Private Capital Markets Project, 695–696 1299 Pereira, João Pedro, 1136, 1145 Pereira Alves, Paulo F., 1022 Pereiro, Luis E., 1050 Performance-based ratemaking, 999 Performance Evaluation Plan, 998 Periodicity of past measurement, 145–147 Peristiani, Stavros, 388 Perpetual exchange option, 623 Personal guarantee, 534–535, 1207 Peterson, David R., 284, 388 Peterson, James D., 212, 214 Petkova, Ralitsa, 639 P&G Enterprise: computation of net cash flow to common equity, 21 computation of net cash flow to common equity starting with EBIT, 22 computation of net cash flow to invested capital, 23, 24 financial statement for, 19–20 Phalippou, Ludovic, 691 Pham, Peter Kiem, 678 Philippon, Thomas, 425 Phillips, Gordon, 551 Phillips, John, 674 Phylaktis, Kate, 125, 1029 Piccolo, Kevin, 107, 121 Pieres, Pedro, 1136, 1145 Pierru, Axel, 721 Pilotte, Eugene, 1006 Pinkerton, Keith, 391, 706 Pinkowitz, Lee, 847 Piotroski, Joseph D., 282 PitchBook, 696, 1244 Plan confirmation, 965–968 Plan of reorganization, 951, 965 Platform contribution transaction (PCT), 801–802 Platt, Harlan D., 575 Plumb, William T., 981 Plummer, James L., 683 Political risks, 1015 Polk, Christopher, 466 Pontiff, Jeffrey, 386 Pool of willing buyers, 9, 434, 632, 787, 792, 977 3GBINDEX02 02/24/2014 17:53:29 Page 1300 1300 Pope, Peter F., 754, 755 Posner, Richard, 928–929, 942, 945 Post, Thierry, 289 Postretirement obligations, 540–542 Potential value, 431, 437–441 Poterba, James, 154 Poteshman, A M., 575 Practitioners’ method formulas, 253–254 Pradhuman, Satya Dev, 347 Pratt, Shannon P., 8, 9, 71, 80, 206, 248, 286, 314, 612, 614, 619, 692, 701, 861, 862, 864, 868, 875, 876, 880, 901, 903, 913, 915, 930, 1122, 1128, 1150 Pratt’s Stats database, 658, 702, 1247–1248 Predicting: conditional ERP, 135–137 ERP, 121–123 Predictive Risk Premium Model, 1006–1007 Preference lawsuits, 952 Preferred equity capital, 538 Pre-initial public offering studies, 616–619 Pre-interest-tax-shield WACC, 569–572 Prejudgment interest rates, 939–940 Premium for risk: cost of capital and, 72 defined, 70, 91 estimating, 82 See also Equity risk premium Premiums over CAPM, 725, 746 Prescott, Edward C., 129 Present value, 7, 13–14 Pretax capitalization rates, 885–886, 989 Price: cash-equivalent, 1054 exit, 729 of M&A transactions, 786–787 See also Transfer pricing PricewaterhouseCoopers, 696 PricewaterhouseCoopers 2013 Patent Litigation Study, 932 Priestly, Richard, 125 Principal market, 730–731 INDEX Pringle, J J., 250, 1153, 1156 Prior period excess returns, 376 Private capital market, 694–695 Private Capital Markets Project, 695–696, 697–699 Private company discount (PCD): DLOM for minority interests and, 651–652 overview of, 650, 661–662 quantifying, 652–660 reasons for, 660–661 Private company pricing line, implied, 701–706 Private Company Trendsetter Barometer Business Outlook Report, 696 Private cost of capital (PCOC) model, 697–700 Private equity investments: overview of, 680–681 realized returns on, 691–692 returns on, 681–682 Probabilistic model, 405, 432 Profitability estimates, 844–846, 848–849 Profit level indicator, 796 Profits See Damages for lost profits Projected benefit obligation (PBO), 540–542 Projecting future value of portfolio of stocks, 158 Projections, bias in, 394–397 Property discount rate, 1069–1074 Property Tax Forum, 990 Property yield rate See Property discount rate Proxy beta, 204, 220, 222–223, 236 Proxy equity volatility, 406 Ptashne, David, 793 PTEs See Pass-through entities Public companies: computing WACC for, 556–561 measuring blockage discounts for, 628–629 testing net cash flow estimates for, 856 Pucek, Jonathon, 544 Purchase price allocation (PPA) analysis, 808–809 Pure CAPM, 191–192, 444–445 3GBINDEX02 02/24/2014 17:53:29 Page 1301 Index Pure play public companies, 375–376 PwC Real Estate Investor Survey, 1071 Qualified cost-sharing arrangements (QCSAs), 796–797, 798, 799 Quantitative easing, 102, 104 Rachwalski, Mark, 419 Racine, Marie D., 272 Radcliffe, R., 640 Railroad cost of capital issues, 1007–1010 Railroad Revitalization and Regulatory Reform Act of 1976, 987 Rajgopal, Shivaram, 387, 526 Ramachandra, Suresh, 755 Ramakrishnan, Ganesh, 544 Ramanna, Karthik, 744 Ramnath, Sundaresh, 162, 465 Randl, Otto, 136 Rangvid, Jesper, 1051 Rapach, David E., 140 Rappaport, Alfred, 13, 175 Rarrino, R., 575 Rate base, 987, 992 Rate of return (ROR): on debt, 1147–1148 FHC and, 631–632 mistaking historical for expected, 1184 value-based reconciliation of, 775–776 See also Expected rate of return; Required rates of return Rate of return-based reconciliation, 772–775 Rattanaruengyot, Thongchai, 423 Raw beta, 211, 909 Raw materials differentials, 845 Ray, Rina, 421 Raynor, John P., 42 Real estate: as competing with other asset classes, 1054–1056 DCF method for, 1067, 1069 determining projection period, 1077–1080, 1081 1301 direct capitalization method for, 1056–1067 estimating property discount rate, 1069–1074 estimating real property value, 1076–1077 overview of, 1052–1053 projecting cash flows, 1080, 1082 steps in valuation of, 1083 structure of transactions, 1053–1054 See also Real estate entities Real estate cycles, 1096–1098 Real estate entities: build-up method for, 1108–1109 capitalization rate for, 1103–1106 capital structure of, 1091–1096 CAPM for, 1109–1110 DCF method and, 1102 direct and indirect real estate cycles, 1096–1098 dividends for, 1112–1116 estimating cost of capital, 1103–1120 funds from operations and adjusted funds from operations, 1126–1128 implied discount rate for, 1106–1107 implied FFO yield for, 1107–1108 income approach and, 1101–1102 long-term dividend and total returns, 1118–1120 net cash flow measurement for, 1098, 1122–1123 overview and definition of, 1085–1088, 1120 projected cash flow for, 1123–1125 projected net cash flow for, 1125 structure of, 1088–1091 underlying assets approach and, 1099–1101 valuation of, 1098–1102, 1122–1128 WACC for, 1116–1118 Real estate investment trusts (REITs), 1085, 1086, 1087 See also Real estate entities Realized historical returns, 142–143 Realized returns: on private equity investments, 691–692 on venture project investments, 684–691 3GBINDEX02 02/24/2014 17:53:29 Page 1302 1302 Realized risk premium: applying approach, 141–147 investor expectations compared to, 127–128, 147–153 measuring, 142 overview of, 119–121, 124 periodicity of past measurement, 145–147 summarized data, 144–145 unexpectedly large, causes of, 128–130 Realized Risk Premiums Excluding 1942-1951, 120 RealtyRates.com, 958, 1064 Reasonable compensation, 970 Reconciliation, 1166 Reeves, Jonathan J., 219, 280, 448 Regression coefficient table, 239 Regression equation method, 500–504 Regression statistics: evaluating output, 238–242 overview of, 234–237 Regression statistics table, 238 Regulated industries: cost of capital and, 992–999 factors impacting cost of equity capital, 999–1007 overview of, 990–992 railroad cost of capital issues, 1007–1010 Rehkugler, Heinz, 1085 Rehm, Werner, 791 Reid, Kenneth, 278 Reilly, Frank K., 424, 453, 561 Reilly, Robert F., 363, 398, 427, 875, 913 REITs (real estate investment trusts), 1085, 1086, 1087 Relief-from-royalty method, 812–813 Rendleman, Nancy S., 986 Reorganization plan, 943, 944, 948, 949 Reorganization value for plan confirmation, 965–968 Report for mid-sized company: Section C–Liabilities, 1138–1146 Section E–Cost of Capital, 1146–1161 Section H–Leased-Fee Interest Valuation, 1161 INDEX Report for smaller-sized company, Section D–Income Approach, 1168–1178 Reporting unit, defined, 727 Reporting units, cost of capital for: ASC 805 and, 727–728 assigning assets and liabilities, 737–738 control premium, synergies, and, 733–736 determining fair value, 728–731 fair value compared to book value of debt, 741–742 impact of goodwill impairment charges on stock prices, 742–745 impairment test, 738–741 market participation assumptions, 731–732 measuring, 745–749 overview of, 722–723, 726 projected cash flows, risk and, 732–733 size as risk measure, 749–750 testing goodwill for impairment, 736–745 Required rates of return (RROR): incremental, for asymmetrical information and lack of control, 634–636 intangible assets, 770–772 NICE method and, 631 venture capitalists and, 626 Residual income, 33–35, 56–59 Residual income method to derive implied estimates, 462–464 Residual methods for estimating capitalization rate, 1066–1067, 1068 Resources See Data resources Resti, Andrea, 424 Restricted Securities Trading Network, 613 Restricted stock, defined, 613 Restricted stock studies, 613–616 Restricted Stock Transaction Studies, Summary of, 614 Retained net cash flows, reinvesting, 850–853 3GBINDEX02 02/24/2014 17:53:29 Page 1303 Index Return on investment, EVA compared to, 828–829 Revenue estimates, 844–846 Revenue Procedure 67-6, 875 Revenue Procedure 2009-15, 1088 Revenue requirements formula, 992, 999 Revenue Ruling 68-609, 873, 874–875, 880 Revenue Ruling 94-47, 981 Revenue Ruling 2003-125, 428–429 Rhie, Jung-Wu, 414 Richardson, Gordon D., 658, 659 Richardson, Matthew, 155, 264, 691 Risk: ASC 820 Fair Value Measurement and, 82–86 changing, and discount rate, 65–67 defined, 71–72 differentiating among assets, 767–772 divisional size and, 726 downside, 270, 289–291 effects on cost of capital of, 72–77 financial, 82, 1015 fundamental measures of, 489–490 global cost of capital models, 1012–1016 inflation, 452, 454 legislative, 1055–1056 marketability, 80 maturity, 6, 77–78 of new cash flows, measuring, 80–82 operating, 223, 243, 261, 420 of small companies, 346–348 systematic, 190–191, 271, 375–377 time horizon, 454 total, 286–288 types of, 77–80 unsystematic, 191–192, 922–923 See also Company-specific risk; Equity risk premium; Fundamental risk; Market risk Risk-adjusted discount rate approach, 85–87, 929–931 Risk aversion, 74–76 Risk factors priced by market: beta, 276–281 distribution of returns, 284 1303 Fama-French three-factor model, 282–283 multifactor models, 283–284 Risk-free discount rate, 927–929 Risk-free rate: build-up method and, 178 choice of, and estimating beta, 210 components of, 96–100 cost of capital and, 72 courts and, 902–903 defined, 6, 70, 91–92 ERP measured relative to, 114–116 maturity risk and, 78 multiple maturities and, 93–94 nominal, build-up of, 99–100 selecting best maturity, 94–95 selecting best yield, 100–109 U.S government securities and, 92–93 Risk neutrality, 74–76 Risk-neutral payoff, 791 Risk premia over risk-free rate, 326–327 Risk premium See Company-specific risk premium; Premium for risk; Realized risk premium Risk Premium Calculator, 1241 Risk premium factor model, 167–168 Risky debt, 536 Ritchken, Peter, 97 Roback, Espen, 616 Roberts, Harry, 1211 Robichek, Alexander A., 86 Robins, R., 1006 Rocaglio, F., 575 Rock, Steve, 162, 465 Roland, Gary, 757 Roll, Richard, 452, 455, 709 ROR See Rate of return Rosenberg, Barr, 278 Ross, Stephen A., 451, 452, 455 Ross, Terence P., 936 Roush, J., 98, 99 Roy, A D., 270 Royalty damages, 934–935 RROR See Required rates of return Ruback, Richard, 29, 394, 423, 571, 683, 930 3GBINDEX02 02/24/2014 17:53:29 Page 1304 1304 Rugman, John, 253 Rule 144 (SEC), 613 Russell 2000 Index, 348 Sabal, Jaime, 575, 1051 Saeed, Syad K., 290, 1211 Saha, Atuna, 397 Sahlman, William A., 683 Sahni, Sumit, 780 Sanders, Jack R., 702 Santa-Clara, Pedro, 286 Sarbanes-Oxley Act of 2002, 529 Sargana, Shahid M., 290 Sarig, Oded, 29, 79 Sarin, Atulya, 652, 653, 688, 689 Sarkar, Sudipto, 720 Savage, Sam, 292 Savva, Christos, 1022 SBBI Yearbook See Ibbotson Stocks, Bonds, Bills and Inflation (SBBI) Valuation Yearbook Scenario-based approach, 291–292 Schauten, Marc, 773 Scherlis, Daniel R., 683 Schiebel, Marcus, 653, 654 Schlueter, Tobias, 217–218 Schmeling, Maik, 1051 Schmidle, Stephan, 571 Schnee, Edward J., 427 Scholes, Myron, 281, 405, 432 Schotman, Peter C., 1021 Schrimpf, Andreas, 1051 Schroder, David, 293, 463 Schulte, Lark-Werner, 1110 Schultze, William S., 1005 Schulz, Robert, 859 Schulze, William, 456 Schurman, Gary, 535 Schutte, Maria Gabriela, 389, 1046 Schwartz, Rick G., 790 Schweihs, Robert P., 363, 875, 913 Schwert, G W., 143 Schwinn, Carl R., 281 S corporations, and courts, 925–926 Seabury, Susan H., 953 Seago, Eugene W., 427 Seaman, Ronald M., 623, 624 INDEX Seasonal businesses, midyear convention formula for, 63 Seasonality and size effect, 363–364 Securities, U.S government, 92–93, 95 Securities and Exchange Commission (SEC): data published by, 467 goodwill impairment and, 750–751 Rule 144, 613 Security analysts, projections of, compared to DCF analysis, 853–855 Security interest in collateral, 943 Security Market Line, 192, 193, 195 Segal, Benjamin, 743 Segment information, 181, 230, 231 Selection bias in analysis of venture capital investments, 687 Sellers, Keith, 543 Semivariance, 289 Sen, Pradyot K., 364 Seret, Jean-Marc, 1040 Serra, Ana Paula, 1039, 1040 Seshan, Raji, 931 Shaff, Michael E., 1120 Shaked, Israel, 398, 427, 931 Shalit, H., 219 Shane, Philip, 465 Shannon, Donald S., 674 Shapir, Offer Moshe, 543 Shapiro, Alan C., 652, 653 Shapiro, Eli, 40, 42 Shareholder value added, 6, 714 Sharma, Vivek, 359 Sharpe, William E., 205, 270 Shea, David H., 1040 Shefftz, Jonathan S., 930 Shiller, Robert J., 282, 1007 Shirley, Mark W., 234 Shout option, 622–623 Shroff, Pervin K., 296, 743 Sias, Richard W., 272 Siegel, Jeremy J., 119, 125, 175, 348, 905 Siegel, Laurence, 1121 Siegel, Lawrence B., 111, 132, 142, 148, 149–151, 175 Siegel, Stephan, 390, 1050 3GBINDEX02 02/24/2014 17:53:29 Page 1305 Index Sievers, Soenke, 217–218 Simin, Timothy, 386, 561 Simin, T T., 218 Simkovic, Michael, 953, 967 Simlai, Pradosh, 359 Simon, Andrew M., 946 Single-period capitalization method, 667, 968 Sinquefeld, Rex, 155 Sironi, Andrea, 424 Sirower, Mark L., 780, 783, 785 Size: measures of, 317 trading cost impact and, 367 See also Size effect; Size premium Size effect: with boom years omitted, 348–350 changing size premium, using, 358–359 composition of smallest decile, 336–338 composition of smallest portfolio, 338–341 data issues with, 341–346, 363–371 disappearance of, 350–358 Duff & Phelps studies of, 316–327 empirical evidence for, 308 estimating for nonpublic company, 327–329 limitations of, 350 Morningstar studies of, 308–316 overview of, 301–302, 329–330 overview of criticisms of, 331, 361–362 relationship to liquidity, 360–361 relationship to measures of risk, 359–360 as result of incorrect measurement of beta, 332–335 risks of small companies and, 346– 348 size as predictor of equity returns, 302–308 transfer pricing and, 808 validity of, 362 Size phenomenon, 196 Size premium: advice on, 1204–1205 1305 build-up method and, 179 courts and, 911–912, 921–922 data on, 196 errors in estimating, 1192–1193 global cost of capital models, 1040–1044 goodwill impairment and, 754 market risk and, 78–79 relationship to measures of risk, 383–385 See also Size effect Size smaller than smallest size premium group, 180 Skewed net cash flow distributions, 73 Skewed net cash flow expectations, 25, 26 Skewness, defined, 284 Slee, Rob, 697, 698, 699 Sliwoski, Leonard J., 930 Sloan, Richard G., 282, 292–293, 465, 744 Small companies: risks of, 346–348 size effect and, 351 Small company risk premium See Size premium Smaller-sized company case study: background, 1162 cost of equity capital, 1164–1166 report, 1168–1178 valuation procedures, 1163–1164 Smallest Risk Premium Report portfolio, composition of, 338–341 Smallest SBBI Valuation Yearbook decile, composition of, 336–338 Small-stock premium See Size premium Smark, Ciorstan, 551 Smith, David C., 392 Smith, W Steven, 359 Smithers, Andrew, 121 Smoothed beta, 211–212 Smoothed Risk Premia over the Risk-free Rate, 328 Smoothed size premia, 322–326 SNL Financial, 1104 Soenen, Luc, 125 Soliman, Mark T., 292–293, 848 3GBINDEX02 02/24/2014 17:53:29 Page 1306 1306 Solvency valuation for fraudulent conveyance and preference claims, 952–962 Sommers, Gregory A., 466 Sondi, Ashwinpaul, 380 Sorensen, Morton, 692 Soroosh, Jalal, 1088 S&P See Standard & Poor’s Spellman, G Kevin, 1007 Spicer, Lucinda, 253 Spot yield-to-maturity, 106 Stability of size effect, 306–308 Staggers Act of 1980, 1007–1008 Stambaugh, Robert F., 129, 155, 639, 640 Stand-alone cash flows, 783–784 Standard error of estimate, 144, 205 Standard Industrial Classification (SIC) codes, 180–181, 703 Standard & Poor’s (S&P): Bond Guide, 523 Capital IQ, 298, 696 Compustat database, 316, 472, 474 Corporate Credit Criteria, 540, 541 data published by, 467, 1242, 1244 500 Index, 203, 208, 209 Global Credit Portal, 523–524 RatingsDirect, 523 Ratings Services group, 530, 541 Stock Guide, 538 Standards of value, 8–9, 809–811, 865, 1191–1192 Stattman, Dennis W., 278 Statutory appraisal, 900 Staunton, Mike, 143, 145, 148–149, 1017–1018, 1020 Stearn, Robert J., Jr., 952 Stegemoller, Mike, 660 Stegink, Rudolf, 773 Stehle, Richard, 1021 Stephan, Jens A., 364 Sterling Morton, 429, 431 Stewart, G Bennett, III, 825 Stigler, George, 928 Stockholder oppression, 900, 1209 Stock market, relationship of M&A market and, 868 INDEX Stocks: impact of goodwill impairment charges on prices of, 742–745 realized historical returns, 142–143 relative risk of, compared to risk of bonds, 123–126 restricted, 613–616 types of, 445, 447 valuing, 37–38 See also Worthless stock, valuation of Stone, Philip, 162 Strebulaev, Ilya, 295, 458 Stremme, Alexander, 279 Strine, Chancellor, 372, 373 Strine, Vice Chancellor, 904, 905, 906, 908, 909 STRIPS, 93 Stroup, Richard L., 934 Stulz, René M., 1014 Stutzer, Michael, 154, 156 Subdeciles 10a and 10b, Probability of Default, 337 Subrahmanyan, Ayanidhar, 645 Subsidiary risk premium delta, 988–989 Suchard, Jo-Ann, 678 Suh, Daniel, 277 Sullivan, Edward J., 270 Sum beta, 207, 212–214, 215, 216, 225–229 Summers, Laurence, 154 Sun, Celine, 390 Superpriority status, 943 Supply-side ERP estimate, 127, 138–139, 153, 985, 1186 Supply-side models, 151, 152 Supporting detail, and courts, 924–925 Surface Transportation Board, 1008–1010 Survey approach to ERP estimates, 135, 171 Surveys: cost of capital surveys, 695–696 Developer Survey, 958 Korpacz Real Estate Investor Survey, 958, 1064, 1071 PwC Real Estate Investor Survey, 1071 Sussholz, Evan, 732, 738 3GBINDEX02 02/24/2014 17:53:29 Page 1307 Index Swaminathan, Bhaskaran, 136, 162 Sylla, R., 143 Symmetrical net cash flow distributions, 73 Symmetrical net cash flow expectations, 25, 26 Synergies: buyer-specific, 810–811 cash flows from, 784–786 company-specific, 735 prospective financial information and, 760 Synergistic buyer, 866, 976, 979–980 Synergistic value, 786, 866 Synthetic credit rating, 220, 1133, 1147 Synthetic ratings methodology, 535 Systematic risk: CAPM and, 190–191, 271 company-specific risk and, 375–377 Szafarz, Ariane, 261, 575 Tabak, David, 628 Takeovers at less than public trading price, 869–872 Tamarkin, Maurry, 756 Tan, Zhiguo, 539 Tang, Vicki Wei, 162, 466 Tang, Yi, 283 Tang, Yongjung Dragon, 1136, 1142, 1144 Tax Act of 1986, 663, 1055–1056 Tax affecting, 664 Tax Affecting to Equate C Corporation Returns to S Corporation Returns, 671 Taxes See Income taxes Taxpayer Relief Act of 1997, 981 Tax Reform Act of 1969, 981 Tax Reform Act of 1981, 1056 Tax Reform Act of 1986, 663, 1055–1056 Tax shields, 528, 569–573 Tax transfer pricing, 794–796 Teoh, Siew Hong, 389 Terminal Index Values: of CRSP NYSE/AMEX/NASDAQ, 351 of CRSP NYSE Deciles 1-10, 303 1307 Terminal value: calculating, 1195–1196 discounting, 1189 Terminal value models, 857–859 Term structure, 116 Tessaromatis, Nikolaos, 387 Testing: goodwill for impairment, 736–745 net cash flow estimates, 849–856 Testing asset pricing models: overview of, 273–275 risk factors priced by market, 275–285 Tham, Joseph, 575, 1049 Thesmar, David, 715, 723 Thomas, Jacob, 29, 162 Thompson, Joseph, 535, 1131 Thompson, Samuel B., 136 Thomson Reuters Financial, 467, 1242 Three-stage model for combining discounting and capitalizing, 49–53 Tian, Yisong S., 540 Tice, Sheri, 661 Time horizon risk, 454 Timelines of net cash flows, 63–65 Time period and size effect, 305–306 Time to liquidity event and value, 632–633 Time value of money, Titman, Sheridan, 401, 575, 683, 1151 Tiwari, Kashi Nath, 116 Todorova, Marianna, 722, 757 Toma, Mark, 120 Toms, Steven, 296 Top-down beta estimates, 220, 419 Top-down implied ERP estimates, 135, 164–167 Top-down risk premium estimates, 135, 167–171 Total beta, 391–393, 706–709 Total risk, 286–288 Tracking stocks, 724 Trademark infringement damages, 936–937 Trade secret damages, misappropriation of, 937–938 Traditional approach, 83–84 3GBINDEX02 02/24/2014 17:53:29 Page 1308 1308 Transaction costs and size effect, 366–371 Transfer pricing: corporate restructuring and, 983–985 cost of capital estimates and, 802–808 example of, 822–824 financial reporting and intangibles valuation, 808–814 for financial services firms, 814–821 income method and, 796–802 overview of, 793–794, 821 tax transfer pricing, 794–796 Travers, Mary Ann K., 847, 1049 Treasury-Federal Reserve Accord in 1951, 1004 Treharne, Chris, 675 Treynor, Jack, 271 Troughton, G., 346 Trout, Robert R., 623 True beta, 218, 273 Trugman, Gary R., 397, 399, 703, 705 Trugman Valuation Associates, Inc., 535 Tsang, Desmond, 1127 Tsoy, Alexander, 755 T-statistic, 205 Turf, David, 779 Tversky, Amos, 1211 Two-stage model for combining discounting and capitalizing: midyear convention in, 61–63 midyear convention with changing risk in, 66–67 overview of, 44, 46–49 Tysiac, K., 751 Ukhov, Andrey, 645 Ukren, Perry, 458 Ulrich, Maxim, 175 Unconditional equity risk premium (ERP): bias in realized risk premium data, 119–121 causes of unexpectedly large realized risk premiums, 128–130 defined, 112, 117–118 estimating, 130–131, 138 investor expectations compared to realized risk premiums, 127–128 INDEX predicting, 121–123 relationship between stock and bond risk, 123–126 selecting sample period of ex post data, 119 Underlying assets approach to valuation of real estate entities, 1099–1101 Underwriter’s method, 1062–1064 Unfunded PBOs, 541 Unidentifiable intangible assets, 763–764, 772–776 Uniform Trade Secrets Act, 937 Unitary assessment, 985 Unit cost of equity capital, reporting, 1203–1204 Unit of account, 730 University of Houston Law Center Patstats, 940–941 Unjust enrichment damages for design patents, 935 Unlevering equity beta: Fernandez formulas, 255–257 Hamada formulas, 247–248, 249 levering equity beta, 250, 252–253 Miles-Ezzell formulas, 248–250, 251, 257, 258 overview of, 243–246 Practitioners’ method formulas, 253–254 Unpatented technology, 983 Unsystematic (unique) risk: CAPM and, 191–192 failure to account for, 922–923 Upton, David E., 674 U.S.C §101(32)/1/201, Useful life, 752, 1077, 1079 U.S International Trade Commission, 935 U.S Patent Act, 933 U.S Private Equity Valuation Guidelines, 681 U.S Proposed Global Dealing Regulations, 815–816 U.S Tax Court, 664, 665–670 U.S Treas Reg §1.482, 816 U.S Treas Reg §1.482-1(b)(1), 794 U.S Treas Reg §1.482-1(c)(1), 799 U.S Treas Reg §1.482-4, 796 3GBINDEX02 02/24/2014 17:53:29 Page 1309 Index U.S Treas Reg §1.482-5, 796, 799 U.S Treas Reg §1.482-7(b), 798 U.S Treas Reg §1.482-7(c)(1), 811 U.S Treas Reg §1.482-7(g)(2)(iii)(A), 795 U.S Treas Reg §1.482-7(g)(2)(iv), 811 U.S Treas Reg §1.482-7(g)(2)(v)(B)(1), 806 U.S Treas Reg §1.482-7(g)(2)(vii), 809 U.S Treas Reg §1.482-7(g)(2)(x), 803 U.S Treas Reg §1.482-7(g)(4), 796 U.S Treas Reg §1.482-7(g)(4)(i)(G), 803 U.S Treas Reg §1.482-7(g)(4)(i)(G)(3), 804 U.S Treasure Inflation-Protected Securities (TIPS), 97–98 U.S Treasury Reg 20.2031-1(6), 429 U.S Utility Financial Ratios, 523 Utility patents, 933 Utility ratemaking, 15 Vainberg, Gregory, 219, 279 Valuation: of acquired intangible assets for transfer pricing, 808–814 of assets, 986–987 of bonds, 14–15 of companies emerging from bankruptcy, 422–424 excess earnings method of, 873–880 as forward-looking concept, 138 interest in pass-through entity, 889–890 of legal entities, 974–980 of levered business enterprise, 547–548 of M&A transactions, 786–787 of mid-sized company, 1132 obligations subtracted in, 540–543 of preferred stock, 37–38 of real estate entities, 1098–1120, 1122–1128 of real property, 1076–1083 of smaller-sized company, 1163–1164 steps in, 11 See also Changing capital structure, valuation with; Constant capital 1309 structure, valuation with; Worthless stock, valuation of Valuation Advisors: Lack of Marketability Discount Study, 616–618, 619, 1249 Lack of Marketability Discount Study Transaction Reports, 618–619 Study for 2001-2012, 617 Value at risk, 291 Value driver model, 857–858 Value-in-use, 877, 986 Value Line, 465 Value Line Publishing, Inc., 467, 1242, 1243 Value stocks, 445, 447 Valuing See Valuation Van Binsbergen, Jules, 551 Vance, David E., 743 Van Dijk, Mathijs A., 355, 363, 1021, 1040 Van Hemert, Otto, 1121 Van Nieuwerburgh, Stijn, 469 Van Overtveldt, Johan, 928 Van Vliet, Pim, 289 Van Zijl, Tony, 709 Vasicek, Oldrich A., 211 Vasicek shrinkage, 211 Vassalou, Maria, 297, 1040 Veenstra, Kevin, 714 Veld, Chris, 539 Velez-Pareja, Ignacio, 559, 575, 1049 Venkatachalam, Mohan, 387 Venkatraman, Ramgopal, 743 Venture capital investments: benchmark returns on, 683–684 overview of, 680–681 realized returns on, 684–691 returns on, 681–683, 692 Venture capitalists, 626 Venture Economics, 681 Venture One database, 684, 690 Venture Xpert database, 688 Verdelhan, Adrien, 1023 Verrecchia, Robert E., 277–278 Vetzal, Kenneth R., 526 Viskanta, Tadas, 1029–1030 Vissing-Jorgensen, Annette, 681 Vitti, Michael, 943 3GBINDEX02 02/24/2014 17:53:29 Page 1310 1310 Volatility: in capital markets, 788–789 illiquidity and, 639–640 of returns, build-up method and, 182 unlevering equity beta and, 264–266 Volatility spreads model, 1026–1028 Voluntary exit financing, 944 Von Neumann, J., 1210 Vuolteenaho, Tuomo, 280, 282, 283, 466 WACC See Weighted average cost of capital Wachter, J A., 132 Wachter, Michael L., 915 Wachter, Susan, 1121 Wagner, Christian, 401, 422 Walker, Heidi, 701, 703 Walker, M Mark, 697 Walkshäusl, Christian, 1051 Wang, Charles C Y., 463 Wang, Junbo, 645, 646 Wang, Kent, 280 Wang, Ko, 1120 Wang, Shiing-wu, 674 Wang, Xiaozheng, 98 Wang, Yaw-Huei, 468 Wang, Yi, 272 Wang, Zhenyu, 169, 285 WARA (weighted average return on assets), 772–775 Ward, John L., 628 Ware, Roger, 934 Warren, James, 290 Watanabe, Akiko, 448 Watanabe, Masahiro, 448 Waterfall analysis, 944 Watts, Ross L., 744 Weaver, William, 857 Weber, Lynne J., 790 Wei, K., 678 Wei, M., 98, 99 Weighted average cost of capital (WACC): advice on, 1208–1209 after-tax, 548–550 applying, 546–547, 1192 assumptions inherent in, 592, 594 INDEX capital structure for, 565–568 CAPM, beta, and, 577–578 computing for nonpublic company, 562–564 computing for public company, 556–561 courts and, 902–913 debt capacity, optimal capital structure, and, 550–556 defined, 5, 17 distressed businesses and, 415–418 equity rate compared to, 919 fixed book-value leverage ratio, 569 iterative process and, 562–564, 578–580, 605–606 iterative process with changing capital structure and, 594–595 for mid-sized company, 1147–1161 overview of, 544–546, 573–575, 576–577, 987–988 pre-interest-tax-shield, 569–572 pretax or post-tax, 753 for real estate entities, 1116–1118 tax shields, 572–573 valuing firm with changing capital structure, 595–605 valuing firm with constant capital structure, 580–592 valuing levered business enterprise, 547–548 for young public companies, 685 Weighted average excess earnings capitalization rate, computing, 879 Weighted average return on assets (WARA), 772–775 Weighted average return on functions (WARF), 813 Weisbach, Michael S., 575, 781 Welch, Ivo, 136 Wen, Quan, 419 Werner, Matthew R., 1119 Wessels, David, 5, 6, 173, 174, 281, 857 Westerfield, Randolph W., 451 White, Gerald, 380 Whitehead, Steven R., 847, 1049 Whitelaw, Robert, 155 Widen, R Scott, 334 3GBINDEX02 02/24/2014 17:53:29 Page 1311 Index Wiener, Zvi, 540 Wilcox, Stephen E., 469 Willens, Robert, 665 Williams, Jack F., 953 Williamson, Rohan, 847 Wilson, Jack W., 151 Wilson, J W., 143 Wilson, Mungo Ivor, 414 Wilson, Thomas C., 785, 787 Wincott, Richard D., 1079 Wise, Richard M., 673 Wolfenzon, Daniel, 691 Womack, Kent L., 466 Wongswan, Jon, 1050 Woodward, Susan, 682 Worldscope Global Database, 1041 Worldwide Risk Premiums Relative to Bonds 1900-2011, 1020 Worthless stock, valuation of: corporate restructuring and, 982 example of, 431–432 liquidating value, 429–431 other issues, 441–443 overview of, 428–429, 443 potential future value, 437–441 potential value, 431 pricing equity as call option, 432–437 Wright, David W., 424, 534, 561 Wright, S H., 143 Wu, Chunchi, 645, 646 Wu, Haifeng, 219 Wu, Zhenyu, 756 WWII interest-rate bias, 101, 119–121, 131 Xia, Lichuan, 125 Xing, Yuhang, 289–290, 297 Xu, Yexiao, 272, 386 Xue, Chen, 449 Yan, Hong, 447, 1136, 1142, 1144 Yan, Qin, 1051 Yang, Jie, 551 Yang, Jun, 714 Yang, Yong, 389 Yeanoplos, Kevin R., 697 Yeh, Tony, 456, 1005 Yield curve, 525 1311 Yield Curve Approach to Determining Current Cost of Debt Capital, 525 Yield spread model, 458, 1022–1025 Yield spreads, 294–295, 452, 1023, 1024, 1025 Yield to call date, 526 Yield to maturity, 526 Yigitbasioghu, Ali Bora, 539 Yildizhan, Celim, 413 Yitzhaki, S., 219 Yohn, Teri Lombardi, 860 Yu, Wayne, 389, 1046 Yung, Chris, 154, 156 Zabolotnyuk, Yuriy, 539 Zacks InvestmentResearch,Inc.,467,1243 Zanetti, L., 575 Zanetti, Laura, 162 Zang, Yoonseok, 28 Zapatero, Fernando, 540 Zechner, Josef, 401, 422 Zein, Jason, 678 Zellweger, Thomas, 294 Zeng, Qi, 448 Zerbst, Robert H., 1063 Zhang, Andrew (Jianzhong), 427 Zhang, Benjamin Yibin, 1142 Zhang, Frank Xiaoling, 645, 646 Zhang, Guochang, 28, 296 Zhang, Haiwen (Helen), 530 Zhang, Ivy, 743 Zhang, J., 304, 345 Zhang, Lu, 283, 447, 448, 449, 468 Zhang, X Frank, 389 Zhang, Yinglei, 389 Zhao, Juing, 386 Zhao, Xinlei Shelly, 842 Zhdanov, Alexei, 405 Zhou, Goufu, 140 Zhou, Hao, 1142 Zhu, Haibin, 1142 Zia, Sargon Y., 42 Zief, Donald B., 1120 Zmijewski, Mark E., 266 Zones of discrimination, 411 Z’-score and z“-score, 411 Z-score model, 410, 412, 414 Zumbro, Paul H., 946 ... Calculate the Cost of Equity Component of the Weighted Average Cost of Capital When Capital Structure Is Changing,” Appendix 7.2 in Pratt and Grabowski, Cost of Capital: Applications and Examples,. .. chapter on cost of capital in transfer pricing Cost of capital for family holding companies Cost of Capital of REITs Global cost of capital estimation, including a new size study of European... Finance Of cers: Using Cost of Capital Data 711 CHAPTER 28 Capital Budgeting and Feasibility Studies 713 CHAPTER 29 Cost of Capital for Divisions and Reporting Units 722 CHAPTER 30 Cost of Capital