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Finding The Discount Rate For A Private Firm Using Public Comparables

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Listed:
  • Lynda S. Livingston

Abstract

Determining the cost of equity is one of the most difficult problems in corporate finance. In this paper, we present a simple estimation example using an internet start-up company. We use public firm comparables for beta, making adjustments for leverage using Harris and Pringle’s (1985) assumptions, rather than Hamada’s (1972). While we consider adjustments for size, unsystematic risk, and illiquidity, we argue that significant adjustments to a Capital Asset Pricing Model approach using public comparables may be unnecessary.

Suggested Citation

  • Lynda S. Livingston, 2014. "Finding The Discount Rate For A Private Firm Using Public Comparables," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 5(1), pages 37-49.
    • Handle: RePEc:ibf:rbfstu:v:5:y:2014:i:1:p:37-49
    as

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    References listed on IDEAS

    as
    1. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
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    More about this item

    Keywords

    CAPM; Equity Valuation; Private Firm Valuation;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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