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Published by: gagan585 on Aug 07, 2008
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10/15/2012

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Aswath Damodaran17
Private Company Valuation
Aswath Damodaran
 
Aswath Damodaran18
Process of Valuing Private Companies
n
Choosing the right model
Valuing the Firm versus Valuing EquitySteady State, Two-Stage or Three-Stage
n
Estimating a Discount Rate
Cost of Equity
Estimating Betas
Cost of Debt
Estimating Default Risk Estimating an after-tax cost of debt
Cost of Capital
Estimating a Debt Ratio
n
Estimating Cash Flows
n
Completing the Valuation: Depends upon why and for whom thevaluation is being done.
 
Aswath Damodaran181
Estimating Cost of Equity for a Private Firm
n
Most models of risk and return (including the CAPM and the APM)use past prices of an asset to estimate its risk parameters (beta(s)).
n
Private firms and divisions of firms are not traded, and thus do nothave past prices.
n
Thus, risk estimation has to be based upon an approach that does notrequire past prices

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