Grabowski’s Take - Discount Rates, Risk, and the Future of Valuation

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Is CAPM still the gold standard for determining cost of capital—or is it time for a rethink? Valuation expert Roger Grabowski explores why CAPM often fails in practice and how shifting toward investment-specific risk provides a more accurate framework for real-world decision-making. We also discuss multi-factor models, ASC 820 implications, and practical strategies for communicating risk concepts to courts and auditors. 

Key Takeaways 

• CAPM's Limitations: Decades of research show CAPM struggles to predict returns accurately, making it less reliable for valuation in practice.
• Investment-Specific Risk: Moving beyond company-specific risk to focus on risks tied to cash flows offers a clearer, more relevant approach.
• Aligning Theory with Practice: Modified CAPM, multi-factor models, and ASC 820's exit value concept help valuation professionals better reflect market realities and communicate effectively. 

Continue reading to learn about key resources available at AICPA-CIMA.com to improve your valuation analyses.

Guest: Roger Grabowski, FASA, Managing Director (ret.), Kroll LLC, Valuation Advisory Services
Host: Josh Shilts, CPA/ABV/CFF/CGMA, Director, Forensic & Valuation Services, Dean Dorton

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• FVS webcast archive | Developing discount rates for fair value reporting
• FVS Practice Aid | Discount Rates, Risks, and Uncertainty in Economic Damages Calculations

The FVS Valuation Podcast archives

• Discounted Cash Flows with Roger Grabowski
• Valuation in a Climate of Uncertainty
• Reconciling Discount Rates for Intangible Asset Valuation in PPAs
• Macroeconomic Update 2025 - Cost of Capital and Valuation Impact

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