A3
Required Return Builder
Estimate the required return several ways, see how far they differ, and send the one you can defend to the case.
Learning focus: The required return is an estimate, not a fact: each method rests on its own assumptions, and small changes here move value a long way.
Case file
%
%
Changes here carry to the other valuation tools. Your case stays in this browser. Sign in to save it to your account.
Market inputs
%
%
Multi-factor
%
%
Build-up
%
%
CAPM return
8.00%
Regression beta
0.900
standard error 0.076
R-squared
0.55
Monthly alpha
0.000%
Case required return
8.00%
WACC
7.29%
83.1% equity
After-tax cost of debt
3.80%
Estimates
| Method | Basis | Return | |
|---|---|---|---|
| CAPM | Beta 0.900 | 8.00% | |
| CAPM, adjusted beta | Beta pulled toward 1: 0.933 | 8.17% | |
| Multi-factor | CAPM plus size and value | 9.30% | |
| Build-up | Risk-free, market, size and company premiums | 10.00% |
Using an estimate changes the required return in every valuation tool, and the change goes in your assumption log.