Basedonitsexpectedgrowthrateof6.36%forthenextfive
yearsand4%thereafter,wehaveestimatedavalueof$1.796
million for the firm today, without any adjustments for
illiquidity (see Figure 14.7 for the valuation). In valuing
KristinKandy,wehaveadoptedanestimationprocessvery
similar to the one we would haveadopted for a publicly
tradedfirm,withonekeyexception.Inestimatingthecostof
capital,weusedabetabasedontotalriskratherthanthemore
conventional beta based on market risk alone.
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FIGURE 14.7Kristin’s Kandy: Valuation
Theresulting higher costsof equity (and capital) generate
muchlowervaluesforthefirm,butthisvaluediscountisfor