July 21, 2022, 1:00 – 3:00 pm EDT
Cost of Capital Dispute:
Damodaran vs. Kroll Cost of Capital Navigator vs. BVResources Cost of Capital Professional
What Is Right and What Is Wrong?
Do you use:
- Standard and Widely Used Cost of Capital Models and Data?
- Build Up Model?
- Modified CAPM?
- Total Beta?
- Historical Equity Risk Premium?
- Supply-Side Equity Risk Premium?
- Normalized Risk-Free Rate?
- Size Premium?
- Company-Specific Risk?
Then you will want to hear Dr. Aswath Damodaran’s severe criticisms of these valuation concepts and learn what is valid and what is not.
Dr. Damodaran has been speaking this spring about inflation and valuation and shared his strong opinions. Just in recent weeks he has said:
- Historical equity risk premium? “I know many of you swear by the Duff & Phelps historical risk premiums. I haven’t used a historical risk premium in valuation in almost 30 years, so I am not in your camp.”
- A “normalized” risk-free rate? “It starts with the risk-free rate and none of this dancing around normalized risk-free rates. It is the actual risk-free rate. This is not something you can normalize because it’s not yours to normalize.”
- The size premium? “You know what I think about the size premium, right? It is this nice fiction that Duff & Phelps has fed into, and every analyst uses when there has been no size premium. It’s the biggest bunch of crap I’ve seen in valuation that people keep doing over and over and over and over again.”
- Company-specific risk premium? “Its absolute [expletive] and I won’t mince words. It’s nonsense.”
- Total beta? “I mean, 30 years ago I concocted this measure that I’m sorry I concocted in hindsight called total beta. It’s being sold by other people.”
Previously he has been quoted:
- Build up models are “recipes for disaster.”
- “Even if you believe that small cap companies are more exposed to market risk than large cap ones, this is a sloppy and lazy way of dealing with that risk …”
- “… it seems foolhardy to put your faith in mean reversion and past data …”
Damodaran’s criticisms are in direct conflict with the models and data widely used from the Kroll Cost of Capital Navigator and BVResources’s Cost of Capital Professional. In this webinar, Jim Hitchner will help you understand the arguments and determine what is acceptable to use.
Jim Hitchner, CPA/ABV/CFF
- Managing Director, Financial Valuation Advisors
- CEO, Valuation Products and Services
- President, The Financial Consulting Group
- Coauthor, Discount for Lack of Marketability Guide and Toolkit
- Coauthor, Hitchner Pratt Fishman: A Consensus View, Q&A Guide to Financial Valuation
- Coauthor, Financial Valuation Applications and Models, fourth edition
- Former member of the AICPA BV Standards Writing Task Force
- Inductee in the AICPA BV Hall of Fame
The participant will learn:
- What is right and what is wrong – Damodaran, Kroll, or BVResources
- The ins and outs of each database
- How each of the databases and information are created
- How to support your models and data
- VPS webinar PowerPoint slides
- Following the webinar, attendees will have access to a video recording of the program.
Jim Hitchner’s Valuation Products and Services (VPS) provides tools to assist practitioners in business valuation, litigation services, and forensics and fraud.
Valuation Products and Service, LLC is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be addressed to the National Registry of CPE Sponsors, 150 Fourth Avenue North, Suite 700, Nashville, TN, 37219-2417. Web site: www.nasba.org.