The Grey Zone
The cost of capital of a mid-sized private company, and why it cannot be measured
The thesis
Cost of capital models were built for companies listed in deep markets. Applying them to a Brazilian private company requires assumptions that no textbook resolves, and every assumption moves the value
What the study establishes
1
The size premium and the illiquidity premium have no published Brazilian benchmark
2
The defensible range for the cost of capital in the middle market is wide enough to double the value
3
Whoever chooses the assumption chooses the outcome, which is why the assumption must be negotiated, not arbitrated
Contents
- The problem
- The components
- The size premium
- Illiquidity
- Capital structure
- The defensible range
- The gaps
- The mandate