Chapter 9: Cost of Capital in Appraisal and Fairness Cases (2010)

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By Gilbert E. Matthews, CFA, Sutter Securities, Inc. (San Francisco, Calif., USA)

The cost of capital is a central issue in business valuations in statutory appraisal, stockholder oppression, and “entire fairness” cases. The Delaware courts have effectively set the standards for valuations related to corporate disputes because Delaware law is widely accepted on corporate legal issues. This chapter primarily discusses Delaware Court of Chancery and Delaware Supreme Court opinions involving the discounted cash flow (DCF) method and its crucial component, the cost of capital. Most of the Delaware decisions discussing cost of capital have come from statutory appraisal cases in the Court of Chancery, and the Court does not differentiate in its approach to cost of capital in fairness cases.

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