The Holy Grail in the Quest for Value (with Alpha Methods and Omega Theories)

Working Paper No. 11, Financial Project Appraisals Working Paper No. 002-03

18 Pages Posted: 17 May 2001

See all articles by Joseph Tham

Joseph Tham

Educational Independent Consultant

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation

Date Written: March 21, 2003

Abstract

In the recent writings on valuation, there is no consensus about the correct formulas for calculating the relevant cost of capital in an M & M world. The proliferation of alpha number of methods and omega number of theories for the calculation of the cost of capital is puzzling because in the derivation of the original M & M result, the use of the no-arbitrage argument would suggest that there should only be a single result.

In this non-technical, introductory teaching note, we would like to present a simple, general and unified approach to valuation in an M & M world. The Holy Grail in the Quest for Value (with alpha methods and omega theories) is rho, the required return to unlevered equity.

Note: This paper is available in Vietnamese at http://ssrn.com/abstract=395000

Keywords: Cost-Benefit Analysis, Capital Budgeting, Project evaluation

JEL Classification: D61, G31, H43

Suggested Citation

Tham, Joseph and Velez-Pareja, Ignacio, The Holy Grail in the Quest for Value (with Alpha Methods and Omega Theories) (March 21, 2003). Working Paper No. 11, Financial Project Appraisals Working Paper No. 002-03, Available at SSRN: https://ssrn.com/abstract=269929 or http://dx.doi.org/10.2139/ssrn.269929

Joseph Tham (Contact Author)

Educational Independent Consultant ( email )

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation ( email )

Ave Miramar # 18-93 Apt 6A
Cartagena
Colombia
+573112333074 (Phone)

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