2016 Valuation Handbook—Guide to Cost of Capital

A team from Duff & Phelps, a global valuation and corporate finance advisor, authored the imposing 2016 Valuation Handbook—Guide to Cost of Capital (Wiley, 2016). The book, part of an ongoing series, is “designed to assist financial professionals in estimating the cost of equity capital for a subject company. Cost of equity capital is the return necessary to attract funds to an equity investment.” Or, put differently, it is the “expected return appropriate for the expected level of risk,” also known as the discount rate. The book’s intended readers are CFOs and investment bankers as well as, more generally, those who are involved with M&A, IPOs, and private equity financing or who for one reason or another are called upon to value a corporation, including conscientious value-oriented investors.

Let me say something I rarely say here: this book was beautifully produced. Printed on high quality, heavy stock and measuring 8 1/2” x 11,” it is well designed, with a font size that doesn’t produce eye strain and with clean, easily readable tables with red accents that match the display type. I can’t easily say how long the book is because it isn’t paginated consecutively but rather section by section.

Back to the content of the book. It analyzes the basic building blocks of the cost of equity capital: the risk-free rate and equity risk premium, the size premium, betas and industry risk premia, and company-specific risk premia. Using data from the Center for Research in Security Prices (CRSP), the authors compare the CRSP deciles size premia studies and the risk premium report studies. They offer examples of CRSP deciles size premia and provide general information about the risk premium report exhibits, as well as examples of the same.

This is not a book for the casual investor, but for those interested in careful corporate valuation it’s a treasure trove. The book is not currently available through Amazon but only directly from Wiley.