Chapters, Fairness Opinions, Valuation Cases

Chapter 16: Cost of Capital in Appraisal and Fairness Cases (2014)

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

This chapter primarily discusses Delaware Court of Chancery opinions involving the discounted cash flow (DCF) method and its crucial component, the cost of capital. The cost of capital is a central issue in judicial business valuations in statutory appraisal and “entire fairness” cases. Importantly, the Delaware courts’ treatment of cost of capital sets the model because Delaware law is widely accepted on corporate legal issues. In addition, a handful of U.S. District Court cases have addressed cost of capital in appraisal and fairness cases under the relevant state laws. Delaware decisions discussing cost of capital arose primarily from statutory appraisal cases and also from entire fairness cases.

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