Module II· Cost of Equity & CAPMIntermediate
Question
How do you calculate the cost of equity for a private company with no market beta?
Answer
Mechanics
Six steps:
- Identify a peer group — 8–12 public comps with a similar business model.
- Pull each peer's levered beta from Bloomberg (5Y weekly, adjusted).
- Unlever each beta with Hamada (peer-specific D/E).
- Take the median or mean of the asset betas.
- Relever to the target capital structure (target D/E from the industry average).
- Plug into CAPM, plus a size premium and illiquidity premium if applicable.
Middle-market
typically a 3–5% spread over public comps because of illiquidity and size.