Join Robert Reilly and Connor Thurman for a dive into the theoretical basis for including a company-specific equity risk premium (CSRP) in the analyst’s cost of equity capital measurement analysis. Learn about measurement procedures and documentation procedures that the analyst may need to perform in the CSRP selection analysis. Also attendees will receive guidance to aid the analyst in the defense of the CSRP selection in a litigation context. Get the best practices you need for measuring the CSRP (by use of benchmarks or “proxies”), documenting the CSRP selection (including performing a functional analysis), and defending the CSRP selection in a litigation context.

1. Introduction;
2. Theory of the cost of equity capital;
3. Cost of equity capital measurement models:
   1. Buildup model;
   2. Capital asset pricing model;
   3. Modified capital asset pricing model (MCAPM); and
   4. Duff & Phelps risk premium report model.
4. Systematic risk and unsystematic risk:
   1. Size-related equity risk premium; and
   2. CSRP.
5. Estimation of a CSRP:
   1. Consideration of a CSRP;
   2. Estimating a CSRP:
      1. Qualitative factors;
      2. Documentation procedures of a qualitative factor analysis; and
      3. Example of qualitative factor analysis.
   3. Proxies for the CSRP:
      1. Quantum of risk in the MCAPM;
      2. Quartile analysis of the CRSP deciles size premia studies 10th decile;
      3. Analysis of relative bond ratings and bond yields; and
      4. Analysis of illiquidity studies (pre-IPO and restricted stock studies).
6. The CSRP and a functional analysis:
   1. Description of a functional analysis:
      1. Components of the functional analysis; and
      2. The 12 steps of the functional analysis.
   2. Application of the functional analysis to measure the CSRP related to the valuation subject; and
   3. Results of the functional analysis.
7. Best practices in defending the CSRP selection; and
8. Final thoughts and conclusion.

1. Describe the theoretical basis of the cost of equity capital and the support for including a CSRP in many valuation, forensic analysis, and financial advisory contexts;
   
2. Perform both: (a) qualitative factor analysis and documentation procedures; and (b) proxy analysis procedures to estimate a CSRP; and
3. Describe how to support and defend a CSRP selection, in particular, within a litigation context.