Company valuation - Discounted Cashflow Analysis (DCF) - Beta

5 important questions on Company valuation - Discounted Cashflow Analysis (DCF) - Beta

Why do businesses that perform stable and independent of market cycles (such as wind farms) have a beta of 0.0x?

Because there is no equity market-related risk.

When is the risk premium naturally higher?

In times of ultra-low interest rates, as the stock market expects interest rates to move to normal levels again within a reasonable time frame.

Historically, the market risk premium in developed markets is what? And the short-term premium moves with market cycles, depending on what?

4.5%

Depending on the risk appetite of the market as a whole.
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What happens if one applies a very low risk-free rate as well as a relatively low risk premium?

The resulting low discount factor would substantially inflate the calculated value of a company, which is unlikely for the market to price in, as a high and inflated value would strongly reverse if interest rates were to rise again.

How is the cost of debt calculated?

Interest expenses * (1-T)

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