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Table of Contents

Part One: Cost of Capital Basics

CHAPTER 1: Defining Cost of Capital
CHAPTER 2: Introduction to Cost of Capital Applications: Valuation, Project Selection, and Ratemaking
CHAPTER 3: Net Cash Flow: The Preferred Measure of Economic Income
APPENDIX 3A: Alternative Measures of Economic Income
CHAPTER 4: Discounting versus Capitalizing
APPENDIX 4A: Equivalency of Capitalizing Residual Income
CHAPTER 5: Discounting—Beyond the Basics
CHAPTER 6: Relationship between Risk and the Cost of Capital

Part Two: Estimating the Cost of Equity Capital

CHAPTER 7: Risk-free Rate
CHAPTER 8: Equity Risk Premium
APPENDIX 8A: Deriving ERP Estimates
APPENDIX 8B: Other Sources of ERP Estimates
CHAPTER 9: Build-up Method
CHAPTER 10: Capital Asset Pricing Model
CHAPTER 11: Beta: Differing Definitions and Estimates
APPENDIX 11A: Examples of Computing OLS Beta, Sum Beta, and Full-information Beta Estimates
APPENDIX 11B: Estimating Beta: Interpreting Regression Statistics
CHAPTER 12: Unlevering and Levering Equity Betas
CHAPTER 13: Criticism of CAPM and Beta versus Other Risk Measures
APPENDIX 13A: Example of Computing Downside Beta Estimates
CHAPTER 14: Size Effect
CHAPTER 15: Criticisms of the Size Effect
APPENDIX 15A: Other Data Issues Regarding the Size Effect
CHAPTER 16: Company-specific Risk
CHAPTER 17: Distressed Businesses
APPENDIX 17A: Cost of Capital and the Valuation of Worthless Stock
CHAPTER 18: Other Methods of Estimating the Cost of Equity Capital
CHAPTER 19: Using the Duff & Phelps Risk Premium Report Data
APPENDIX 19A: Examples Using the Duff & Phelps Risk Premium Report Data

Part Three: Estimating the Overall Cost of Capital

CHAPTER 20: Other Components of a Business's Capital Structure
CHAPTER 21: Weighted Average Cost of Capital
APPENDIX 21A: Iterative Process Using CAPM to Calculate the Cost of Equity Component of the Weighted Average Cost of Capital

Part Four: Estimating the Cost of Capital—Non-Freely Traded Interests

CHAPTER 22: Handling Discounts for Lack of Marketability and Liquidity for Minority Interests in Operating Businesses
CHAPTER 23: Cost of Capital of Family Holding Company Interests
CHAPTER 24: The Private Company Discount for Operating Businesses
CHAPTER 25: Cost of Capital of Interests in Pass-through Entities
CHAPTER 26: Relationship between Risk and Returns in Venture Capital and Private Equity Investments
CHAPTER 27: Cost of Capital for Closely Held Businesses 693

Part Five: Corporate Finance Officers: Using Cost of Capital Data

CHAPTER 28: Capital Budgeting and Feasibility Studies
CHAPTER 29: Cost of Capital for Divisions and Reporting Units
CHAPTER 30: Cost of Capital for Fair Value Reporting of Intangible Assets
CHAPTER 31: Cost of Capital in Evaluating Mergers and Acquisitions
CHAPTER 32: Cost of Capital in Transfer Pricing
APPENDIX 32A: Cost of Capital in Transfer Pricing Example
CHAPTER 33: The Role of the Cost of Capital in EVA and in Corporate Value-Based Management

Part Six: Other Cost of Capital Considerations

CHAPTER 34: Estimating Economic Income
CHAPTER 35: Minority versus Control Implications of Cost of Capital Data
CHAPTER 36: How Cost of Capital Relates to the Excess Earnings Method of Valuation
CHAPTER 37: Adjusting the Discount Rate to Alternative Economic Income Measures

Part Seven: Considerations in Special Applications

CHAPTER 38: How Courts View Cost of Capital
CHAPTER 39: Global Cost of Capital Models
CHAPTER 40: Cost of Capital of Real Property—Individual Assets
APPENDIX 40A: Valuing Real Property
CHAPTER 41: Cost of Capital of Real Estate Entities
APPENDIX 41A: Valuing Real Estate Entities

Part Eight: Case Studies

CHAPTER 42: Cost of Capital for a Mid-Sized Company
APPENDIX 42A: Report for Cost of Capital for a Mid-Sized Company
CHAPTER 43: Cost of Capital for a Smaller-Sized Company
APPENDIX 43A: Report for Cost of Capital for a Smaller-Sized Company

Part Nine: Advice to Practitioners

CHAPTER 44: Common Errors in Estimation and Use of Cost of Capital
CHAPTER 45: Advice on Dealing with Cost of Capital Issues

APPENDIX I: Bibliography
APPENDIX II: Data Resources
APPENDIX III: Glossary of Cost of Capital Terms
About the Website
Index of Cases
Index

Author/Editor: Shannon Pratt and Roger Grabowski
Publisher: Wiley
Published: April 2014