Estimating cost of capital in firm valuations with arithmetic or geometric mean – or better use the Cooper estimator?

Breuer, Wolfgang; Fuchs, Daniel; Mark, Klaus

doi:10.1080/1351847x.2012.733717

Cited by 12 publications

(8 citation statements)

References 11 publications

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“…For each sample company, the ROE was computed as the NI divided by the book value (BV). Breuer et al (2014) suggested that one may rely on historical return moments. For Rojo (2014), ROE based on accounting data seems to be a good instrument with which to analyse the value of an investment project and may be a landmark in the study of the discount rate.…”

Section: (10)mentioning

confidence: 99%

“…Cruz (2012) used bootstrapping and Monte Carlo simulation for decision-making purposes in the assessment of investment projects. Breuer et al (2014) estimated the discount rate for firm valuation by way of a bootstrap approach.…”

Section: Bootstrapping Of Valuation Multiplesmentioning

confidence: 99%

“…The cost of equity (k e ) is typically calculated via the CAPM in both listed companies (Breuer et al, 2014) and unlisted companies (Rojo & García, 2006;Rojo, 2013). By eliciting responses from the finance directors of 193 UK quoted firms, McLaney et al (2004) found a significant association between the use of the WACC and the use of the CAPM.…”

Section: (10)mentioning

confidence: 99%

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Valuation of agrifood SMEs. Lessons to be learnt from the stock market

Vidal¹,

Ribal

2018

Span. j. agric. res.

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The European agrifood industry is mostly characterized by small and medium enterprises (SMEs); as in 2013, SMEs represented 99.13% of the total number of companies. The valuation of SMEs not listed in any stock market is a complex task since there is not enough information on comparable transactions. When applying discounted cash flow (DCF) models to value private agrifood companies, the capital structure and the cost of equity are two key parameters to be determined. The implications of these parameters in the value of the enterprise are not clear inasmuch as it is not possible to carry out a contrast due, precisely, to the lack of comparables. The main goal of this study is to determine the biases that those two parameters can introduce into the valuation process of an agrifood company. We have used the stock market as a framework wherein to apply a simple fundamental model to the companies of the European food industry in order to obtain three valuation multiples. By means of two bootstrap approaches, the bias induced in the multiples has been assessed for every year from [2002][2003][2004][2005][2006][2007][2008][2009][2010][2011][2012][2013]. Results show that the use of the return on equity as cost of equity tends to undervaluation; the use of capital asset pricing model (CAPM) tends to a slight overvaluation, whereas using the total beta induces an undervaluation bias. Moreover, the capital structure shows little influence on the valuation multiples. The conclusions drawn from this paper can be useful for managers and shareholders of privately-held agrifood companies.

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Section: (10)mentioning

confidence: 99%

Section: Bootstrapping Of Valuation Multiplesmentioning

confidence: 99%

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Valuation of agrifood SMEs. Lessons to be learnt from the stock market

Vidal¹,

Ribal

2018

Span. j. agric. res.

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“…La segunda manera de fijar la tasa de los recursos propios (ke) es mediante el uso del modelo de valoración de activos financieros (CAPM). El coste de los recursos propios (ke), es típicamente calculado mediante esta vía tanto en empresas que cotizan en bolsa (Breuer et al, 2014) como en empresas que no cotizan en la bolsa (Rojo y García, 2006;…”

Section: El Modelo Capm Con Diversificación De La Carteraunclassified

“…El coste de los recursos propios (ke) se ha calculado típicamente mediante el modelo CAPM tanto en las empresas cotizadas (Breuer et al, 2014) como en las no cotizadas (Rojo y García, 2006). La tasa libre de riesgo se ha estimado mediante los rendimientos del bono español a 10 años (Banco de España, 2016), mientras que la prima de riesgo del mercado se ha obtenido mediante el cálculo de la media geométrica del exceso de la rentabilidad del mercado según el IGBM (Índice General de la Bolsa de Madrid) respecto de la tasa libre de riesgo comentada anteriormente.…”

Section: Determinación De La Tasa De Descuentounclassified