Andrew Stolz

MARCH 20, 2020

The formula implies the return an investor expects from a risk-free investment plus the return from the stock in relation to market volatility. The market risk premium is calculated from a market rate of return less a risk-free rate. Therefore, the risks of the firm are eventually increased.

Beta 52

Beta Capital Structure Risk-free Rate Weighted Average Cost of Capital 52

Brian DeChesare

MAY 3, 2023

Dividend Discount Model, Part 4: Present Value of Terminal Value and Dividends Since the Dividend Discount Model is based on Equity Value, not Enterprise Value, the Discount Rate is the Cost of Equity: Risk-Free Rate + Equity Risk Premium * Levered Beta.

Dividends 64

Dividends Terminal Value Enterprise Value Equity 64

Musings on Markets

FEBRUARY 8, 2022

Relative Risk Measures Before we embark on how to measure relative risk, where there can be substantial disagreement, let me start with a statement on which there should be agreement. At the start of 2022, the ten sectors (US) with the highest and lowest relative risk (unlettered betas), are shown below.

Risk Premium 67

Risk Premium Beta Start-ups Equity 67

Musings on Markets

JANUARY 5, 2024

Employee Count & Compensation I nvesting Principle Financing Principle Dividend Principle Hurdle Rate Project Returns Financing Mix Financing Type Cash Return Dividends/Buyback s 1. Beta & Risk 1. Equity Risk Premiums 2. Ratings & Spreads 2. Return on Equity 1. Debt Ratios & Fundamentals 1.

Dividends 98

Dividends Risk Premium Equity Book Value 98

Musings on Markets

JANUARY 12, 2021

Thus, you and I can disagree about whether beta is a good measure of risk, but not on the principle that no matter what definition of risk you ultimately choose, riskier investments need higher hurdles than safer investments.

Corporate Finance 52

Corporate Finance Start-ups Finance Marketability 52

Musings on Markets

JANUARY 31, 2024

In my last three posts, I looked at the macro (equity risk premiums, default spreads, risk free rates) and micro (company risk measures) that feed into the expected returns we demand on investments, and argued that these expected returns become hurdle rates for businesses, in the form of costs of equity and capital.

Equity 79

Equity Book Value Start-ups Corporate Finance 79

Valutico

OCTOBER 20, 2022

Rf = Risk-free Rate. B = Beta. (Rm Rm – Rf) = Equity Market Risk Premium. Cp = Cost of Equity Premium. DCF WACC—similar to the above except that it calculates a different WACC in each forecast period based on a changing capital structure (D/E) and thus a changing beta in each period.

Discounted Cash Flow 52

Discounted Cash Flow Terminal Value Weighted Average Cost of Capital Net Present Value 52