Cost of capital workbook
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Bibliographic Information
Cost of capital workbook
Wiley, c2002
2nd ed.
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Description and Table of Contents
Description
This book presents proven, practical techniques for estimating the cost of capital. "I would recommend "Cost of Capital" and the companion "Cost of Capital Workbook" as excellent tools for passing the various professional exams that lead to valuation accreditations and designations." - James R. Hitchner, Phillips Hitchner Group, Inc., Atlanta, Georgia. "As a discussion leader for the AICPA ABV exam review course, this set of questions is perfect for people to use for practice for that exam and others (ASA and NACVA from my experience), for that matter. The mix of formats, including exercises, is great." - Ronald L. Seigneur, Seigneur & Company, PC, CPAs, Lakewood, Colorado. "The exercises are particularly good." - Stephen J. Bravo, Apogee Business Valuations, Framingham, Massachusetts. 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, however, one of the most difficult procedures to perform and assess.
The "Cost of Capital Workbook" will help financial officers of small, midsize, and even multibillion dollar companies estimate required rates of return and tackle the myriad issues associated with cost of capital. It will also help business valuation professionals of all levels to gain a greater understanding of cost of capital concepts and procedures. Using hands on exercises designed to implement procedures described in "Cost of Capital, Second Edition", the "Cost of Capital Workbook" provides a deeper understanding of cost of capital problems by offering a practical experience in applying solutions.
The "Workbook" includes multiple choice, true or false, and fill in the blank questions as well as: exercises estimating cost of capital by the build up model and the Capital Asset Pricing Model Exercises using Ibbotson Associates "Stocks, Bonds, Bills, and Inflation Valuation Edition Yearbook Applications" using discounted cash flow (DCF) methods, based on forecasted earnings and cash flows; Examples covering valuing a business by both equity and invested capital procedures, making project selections, and utility rate determinations; numerous exercises using Ibbotson data from the "Cost of Capital Workbook". Business appraisers, corporate finance officers, CPAs, and attorneys will find the "Cost of Capital Workbook" an indispensable guide to the effective estimation and application of cost of capital.
Table of Contents
List of Exhibits.Preface.Acknowledgments.Notation System Used in This Book.Basic Formulas.Section One: Questions.Part I: Cost of Capital Basics.1. Defining Cost of Capital.2. Introduction to Cost of Capital Applications: Valuation and ProjectSelection.3. Net Cash Flow: The Preferred Measure of Return.4. Discounting versus Capitalizing.5. Relationship between Risk and the Cost of Capital.6. Cost Components of a Company's Capital Structure.7. Weighted Average Cost of Capital.Part II: Estimating the Cost of Equity Capital.8. Build-up Models.9. Capital Asset Pricing Model.10. Proper Use of Betas.11. Size Effect.12. Discounted Cash Flow Method of Estimating Cost of Capital.13. Using Ibbotson Associates Cost of Capital Data.14. Arbitrage Pricing Model.Part III: Other Topics Related to Cost of Capital.15. Minority versus Control Implications of Cost of Capital Data.16. Handling the Discount for Lack of Marketability.17. How Cost of Capital Relates to the Excess Earnings Methodof Valuation.18. Common Errors in Estimation and Use of Cost of Capital.19. Cost of Capital in the Courts.20. Cost of Capital in Ad Valorem Taxation.21. Capital Budgeting and Feasibility Studies.22. Central Role of Cost of Capital in Economic Value Added.Appendix: Data Resources.Section Two: Answers.Part I: Cost of Capital Basics.1. Defining Cost of Capital.2. Introduction to Cost of Capital Applications: Valuation and ProjectSelection.3. Net Cash Flow: The Preferred Measure of Return.4. Discounting versus Capitalizing.5. Relationship between Risk and the Cost of Capital.6. Cost Components of a Company's Capital Structure.7. Weighted Average Cost of Capital.Part II: Estimating the Cost of Equity Capital.8. Build-up Models.9. Capital Asset Pricing Model.10. Proper Use of Betas.11. Size Effect.12. Discounted Cash Flow Method of Estimating Cost of Capital.13. Using Ibbotson Associates Cost of Capital Data.14. Arbitrage Pricing Model.Part III: Other Topics Related to Cost of Capital.15. Minority versus Control Implications of Cost of Capital Data.16. Handling the Discount for Lack of Marketability.17. How Cost of Capital Relates to the Excess Earnings Methodof Valuation.18. Common Errors in Estimation and Use of Cost of Capital.19. Cost of Capital in the Courts.20. Cost of Capital in Ad Valorem Taxation.21. Capital Budgeting and Feasibility Studies.22. Central Role of Cost of Capital in Economic Value Added.Appendix: Data Resources.International Glossary of Business Valuation Terms.CPE Self-study Examination.Index.
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