Using the build-up method and assuming that no adjustment for industry risk is required, calculate an equity
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Question:
Using the build-up method and assuming that no adjustment for industry risk is required, calculate an equity discount rate for a small company, given the following information:
Equity risk premium = 5.0 percent (RPm)
Mid-cap equity risk premium = 3.5 percent
Small stock risk premium = 4.2 percent (RPs)
Income return on long-term bonds = 5.1 percent
Total return on intermediate-term bonds = 5.3 percent
Company-specific risk premium = 3.0 percent (RPu)
20-year Treasury bond yield as of the valuation date = 4.5 percent
Related Book For
Equity Asset Valuation
ISBN: 978-0470571439
2nd Edition
Authors: Jerald E. Pinto, Elaine Henry, Thomas R. Robinson , John D. Stowe, Abby Cohen
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