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The Lawyer's Guide to Cost of Capital: Understanding Risk and Return for Valuing Businesses and Other Investments

Product details:

Brand: American Bar Association
ISBN: 9781627227247
Publication frequency: Updated as changes in the law dictate
Update method: N/A

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The Lawyer's Guide to Cost of Capital: Understanding Risk and Return for Valuing Businesses and Other Investments


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Cost of capital is arguably the most important concept in all of finance, as it is the expected rate of return that market participants require to attract funds to an investment. The cost of capital estimate is the essential link that enables a business to convert a stream of expected income into an estimate of present value. It is a matter frequently litigated in the Federal Courts and the Delaware Court of Chancery, as well as in state courts nationwide.

The Lawyer’s Guide to the Cost of Capital provides the most comprehensive survey of cost of capital caselaw across jurisdictions and venues. Cost of capital is a key topic in the valuation of business interests, particularly interests in closely held entities, and it offers attorneys, judges, and valuation experts with a comprehensive sourcebook for understanding the basis of a business valuation and for background in examining and cross-examining expert witnesses.

Part 1 explains the concept of “cost of capital” in a manner that is logical and understandable. In the book’s first 10 chapters, the authors present the basics of the cost of capital in almost any situation, with topics that include:

  • Valuing equity versus invested capital
  • Net cash flow
  • Discounting and capitalizing
  • Estimating the cost of equity capital
  • Adjusting a discount or capitalization rate for another economic income measure
  • Weighted averages
  • Excess earnings method of valuation
  • Handling discounts for lack of marketability and liquidity

Part II considers specific legal and economic contexts in which the cost of capital is a significant factor, including:

  • Family law
  • Estate planning
  • Corporate restructuring
  • Federal taxation
  • Damage claims
  • Intellectual property disputes
  • Bankruptcy
  • Appraisal and fairness cases
  • Regulated industries
  • Ad valorem taxation

In Part III, the authors provide information for understanding and evaluating an expert’s report, presenting frequently encountered errors in valuation reports, and providing key questions to ask when examining witnesses in litigation.