Cost of Equity In assessing the cost of equity for publicly traded firms, we looked at the risk of investments through the eyes of the marginal investors in these firms. With the added assumption that these investors were well diversified, we were able to define risk in terms of risk added on to a diversified portfolio or market risk. The beta in the capital asset pricing model (CAPM) and betas (in the multifactor models) that measure this risk are usually estimated using historical stock prices. The absence of historical price information for private firm equity and the failure on the part of many private firm owners to diversify can create serious problems with estimating and using betas for these firms....
- CHAPTER 24: Valuing Private Firms
- from Investment Valuation: Tools and Techniques for Determining the Value of Any Asset, Third Edition
- Publisher: John Wiley & Sons
- Released: April 2012
FYI- Calculating WACC would be easy if we were public. I'm trying to find a way to calc our opportunity cost in another way. If not, we can try this way but it's pretty time consuming and prone to inaccuracy.
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