New Method of Determining Cost of Equity in Private Equity Investments

Q4 Economics, Econometrics and Finance
Manu Sharma
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引用次数: 2

Abstract

In this article, the author develops an equation to calculate the cost of equity when valuing private equity investments. The cost of ownership is employed as a discount rate when discount cash flow methodology is employed to determine the value of the capital of a company. The equation is built incorporating three factors: market returns, private equity index returns, and illiquidity. Illiquidity is essential, as private equity investments do not trade as readily as securities trading in public stock markets. By using different weights for each of the factors with boundary conditions, the author illustrates how different weights of elements can be used to influence the cost of equity in a private equity investment.
确定私募股权投资权益成本的新方法
在本文中,作者提出了一个公式来计算私募股权投资的股权成本。当采用现金流折现法确定公司资本价值时,所有权成本被用作折现率。该等式包含三个因素:市场回报率、私募股权指数回报率和非流动性。缺乏流动性是至关重要的,因为私募股权投资不像公开股票市场上的证券交易那样容易交易。通过对每个具有边界条件的因素使用不同的权重,作者说明了如何使用不同的元素权重来影响私募股权投资的股权成本。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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来源期刊
Journal of Private Equity
Journal of Private Equity BUSINESS, FINANCE-
CiteScore
0.40
自引率
0.00%
发文量
0
期刊介绍: The Journal of Private Equity (JPE) gives you in-depth analysis of today"s most innovative strategies and techniques in private equity and venture capital. It shows you the what, how and why of successful deals with detailed explanations, probing analysis, and real-life case studies—and shows you how to immediately apply them to your own deals.
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