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Understanding the Company-Specific Risk Premium: A Guide for Attorneys

Gross Mendelsohn

Understanding risk factors is essential in determining how a business will be valued. Let’s consider what your business-owning clients need to know about company-specific risks and how they come into play when it’s time for a business valuation.

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Risk Premiums: A Look at CSRP

BVR

Is anything “company-specific” per se? Company-specific risk is not an ideal name for this risk. All firms face company-specific risks, many of which are somewhat similar across industries and companies. For example, how many firms have you valued that had to deal with the risk of customer concentration?

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Discount Rate—Explanation, Definition and Examples

Valutico

To refine the selection of the discount rate, it’s important to draw on inputs from credible sources regarding economic, industry and company specific risk factors. Capital Asset Pricing Model (CAPM): According to CAPM, the expected return on a stock has two main components: the risk-free rate and a risk premium.

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What is the Capital Asset Pricing Model (CAPM)?

Andrew Stolz

If an investor moves money from the risk-free asset into the stock market, they should expect to earn a return in excess of the risk-free rate, what is called an equity risk premium. Unsystematic risks are risks specific to a particular stock, which is why they are also called, company-specific risk.

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Data Update 4 for 2021: The Hurdle Rate Question!

Musings on Markets

If you put all your money in one or the other of these companies, you are exposed to all these risks, but if you spread your bets across a dozen or more companies, you will find that company-specific risk gets averaged out. But what if the company is looking at a project in Nigeria or Bangladesh? as mature markets. for Ford).

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How to Value a Business in the Diversified Real Estate Activities Industry

Equilest

Market volatility, regulatory changes, interest rate fluctuations, tenant turnover, and project-specific risks are examples of factors that can impact a company's value. Assessing and quantifying these risks helps determine an appropriate discount rate or risk premium when calculating the company's value.

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Mercer’s Musings #4: Factors to Consider in Valuing Partial Ownership Interests

Chris Mercer

Since risk is greater, restricted share prices are lower than the public price, therefore yielding restricted stock discounts. Appraisers sometimes think that it is not possible to estimate holding period premiums. However, the same appraisers estimate company-specific risk premiums on a regular basis.