Cost of Capital: Estimation and Applications

By Shannon P. Pratt

An authoritative text on cost of capital for both the nonprofessional and the valuation expert -- now revised and expanded In endeavoring to practice sound corporate finance, there is perhaps nothing so critical, nor slippery, as cost of capital estimation. The second edition of Cost of Capital: Estimation and Applications combines a state-of-the-art treatise on cost of capital estimation with an accessible introduction for the nonprofessional. This comprehensive yet usable guide begins with an exposition of basic concepts understandable to the lay person and proceeds gradually from simple applications to the more complex procedures commonly found in the marketplace. New features of the revised and expanded Second Edition include chapters on Economic Value Added (EVA) and reconciling cost of capital in the income approach with valuation multiples in the market approach, as well as expanded coverage of cost of capital in the courts and handling discounts for marketability. Cost of Capital remains an incomparable resource for all parties interested in effective business valuation.

• Format: Hardcover
• Language: English
• ISBN: 0471224014
• ISBN13: 9780471224013
• Release Date: October 2002
• Publisher: Wiley
• Length: 352 Pages
• Weight: 1.48 lbs.
• Dimensions: 9.6" x 1.2" x 6.2"

Customer Reviews

Best Valuation Tool Available

Pratt took his many years of valuation experience and put it in this one book. The book reviews the theory and practice of how to derive a discount rate for use in a DCF. At present, it's the best book in print for appraisers.

For valuation of nonpublic companies - A good read!

The valuation profession has exploded among CPAs, CBAs and others who attend a few seminars and then undertake to do this complicated work. Many end up doing a shabby job, because they do not understand basic concepts of cost of capital. The understanding of aspiring business appraisers will grow from reading this book, as (I believe) mine did.This book is NOT written by an academician (although I think I recall that Shannon has a PhD in finance). A fair example of an academician's work, reflecting a different approach and serving different needs, is Bradford Cornell's fine work on the equity risk premium.Pratt has authored several classic books on business valuation. He has valued thousands and testified in US Tax Court, state courts and federal courts across the country. He continues to speak to business appraisers across the country. This book summarizes issues he knows need to be better understood by those of us who consult with closely held businesses.This is a short book and an easy read, but packed with good information for those who want to better understand the cost of capital in the context of valuing small businesses.