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Cost of Capital: Applications and Examples Hardcover – October 19, 2010

ISBN-13: 978-0470476055 ISBN-10: 0470476052 Edition: 4th
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Editorial Reviews

From the Inside Flap

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 and is also the most difficult procedure to assess and perform. Now in its fourth edition, Cost of Capital: Applications and Examples addresses the most controversial issues and problems in estimating the cost of capital.

Renowned valuation experts and authors Shannon Pratt and Roger Grabowski present both the theoretical development of cost of capital estimation and its practical application to valuation, capital budgeting, and forecasting of expected investment returns encountered in current practice. In this learning text/handy reference, Pratt and Grabowski deftly review and explore the theory of what drives¿the cost of capital, the models currently in use to estimate cost of capital, and the data available as inputs to the models to estimate cost of capital.

In this thoroughly updated and comprehensive fourth edition, Cost of Capital summarizes the results and practical implications of the latest research—much of which is gleaned from unpublished academic working papers—and includes scores of formulas and elucidating examples throughout to enhance readers' insights.

Pratt and Grabowski have updated their text to include a host of new material, including:

  • A new chapter reconciling various forms of the income approach

  • Expanded material on estimating the equity risk premium, chronicling the impact of the crisis of 2008–2010 and its impact on the cost of equity capital

  • Expanded material on estimating the cost of debt capital and the impact of deleveraging on the debt capacity of businesses

  • An updated chapter covering cost of capital for financial reporting under SFAS 141R, 142, and 144 (with full cross-referencing to the new FASB Accounting Codification), with examples of inferring rates of return for underlying assets from cost of capital of reporting units

  • Expanded chapters on risk measures and their relationship to cost of capital and company-specific risk

  • Expanded chapters on cost of capital for distressed companies

  • Expanded discussions on the Morningstar SBBI data on supply-side equity risk premium and size premium

  • Updated chapter on the cost of capital in transfer pricing related to the valuation of intangible assets under the new cost-sharing regulations

The landmark book corporate treasurers, business appraisers, CPAs, and valuation experts have come to rely on, Cost of Capital lays out the basic tools to use immediately when estimating cost of capital or when reviewing an estimate. This dynamic author team also analyzes criticism of major models for developing estimates of the cost of capital in use today, and also presents procedures for a number of alternative models.

This definitive text is an indispensable reference tool for professional valuation practitioners as well as attorneys and judges, investment bankers, CFOs, academicians and students, and CPAs.

From the Back Cover

Praise for the Third Edition of Cost of Capital

"Shannon Pratt and Roger Grabowski have not only brought together all of the issues in the cost of capital computation but have done so in a way that melds timely advice for practitioners with serious debate about the best practices in the area; it belongs on the bookshelves of serious valuation practitioners."
—Aswath Damodaran, Professor, New York University, Stern School of Business

"One of the four traits of great executives is their understanding of the fundamental reality of wealth creation—successful organizations invest to earn a rate of return in excess of their cost of capital. Organizations need assistance in better understanding and estimating the cost of capital and in communicating their results. This book can be a valuable tool for executives and their organizations."
—Geoffrey Colvin, Editor at Large, Fortune

"Cost of Capital, authored by two of the leading valuation experts in North America, is a comprehensive resource for financial professionals engaged in business appraisal, fair value measurement for financial reporting, corporate finance, damage quantification, and transfer pricing. This authoritative book makes a timely and significant contribution to the business valuation body of knowledge and is clearly an essential part of the expert's library."
—Richard M. Wise, FASA, MCBA, CVA, FCBV, FCA, Managing Partner, Wise, Blackman LLP

"I do not think you will find, anywhere, as comprehensive a book on cost of capital as this impressive Third Edition. Pratt and Grabowski have presented a great deal of valuable research in a very understandable manner. They also provide information and opinions that challenge some generally accepted data sources and applications, particularly, as it pertains to equity risk premiums. This book is a must-read."
—James R. Hitchner, CPA/ABV, ASA, Managing Director, The Financial Valuation Group, Editor in Chief, Financial Valuation and Litigation Expert journal

"Shannon Pratt and Roger Grabowski have combined painstaking research and writings from other contributors, with thoughtful commentary, views and advice surrounding the topic of the cost of capital, into a single volume. It is written in a style that should appeal to a wide variety of constituents. It advances the state of reference material on this topic for valuation practitioners and will also provide a solid foundation for continued debate and research on the topic for many years to come."
—Anthony V. Aaron, Americas Leader, Quality and Risk Management, Ernst & Young Transaction Advisory Services --This text refers to an out of print or unavailable edition of this title.

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Product Details

  • Hardcover: 704 pages
  • Publisher: Wiley; 4 edition (October 19, 2010)
  • Language: English
  • ISBN-10: 0470476052
  • ISBN-13: 978-0470476055
  • Product Dimensions: 7.5 x 1.7 x 10.2 inches
  • Shipping Weight: 3.4 pounds
  • Average Customer Review: 5.0 out of 5 stars  See all reviews (1 customer review)
  • Amazon Best Sellers Rank: #1,230,405 in Books (See Top 100 in Books)

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