Dear Madam/Sir ...,
You receive this message because you are interested in company valuation. You bought F-Valuation Software or downloaded a demo version in the past. Herewith the latest news on the risk premium 2012.
Last Risk Premium 2012 now avalailable.
The disappointing long-term trends in stock markets, resulted as to 2012 in a risk premium of 1.56% for the UK. As to 2011, the risk premium was still 4.05%.
Both calculations are based on the maximum number of years since 1900 and using as method the unweighted average of all methods of calculation.
For now comparative data from other sources are not yet available.
The 'risk free' UK rate is also down to 2.45% end 2011, from 3.81% at the end of 2010.
In total this gives actually about 4.01% remuneration for the equity component in company and other valuations.
Very unusual currently other sources of business financing are hardly available and/or often more expensive (before tax). Therefore financial leverage has lost its capacity to lower the cost of equity.
Even the forecasting method to determine the risk premium based for example on 10 years, turned strongly negative.
In these circumstances, a WACC of around 4.01% is the result, or conversely, a theoretical Price/Earnings relation of almost 25.
The actual average PE on almost all markets is much lower.
In England for example, FTSE calculated actual PE of the UK All-Share index end 2011 at 10.60 and end 2010 at 12.90.
Under some assumptions, all investors, pension and investment funds should theoretically buy shares now, especially given the ample confidence in the viability of UK public debt.
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