Demystifying the Use of Beta in the Determination of the Cost of Capital and an Illustration of Its Use in Lazard’s Valuation of Conrail
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Demystifying the Use of Beta in the Determination of the
Cost of Capital and an Illustration of Its Use in Lazard’s
Valuation of Conrail
Samuel C. Thompson, Jr.*
C. Background Information on Return on the Market and on Four Securities …..249
III. DERIVATION OF BETA THROUGH THE USE OF COVARIANCE AND VARIANCE……….252
V. DERIVATION OF BETA THROUGH THE USE OF EXCEL’S LINEAR REGRESSION
* Professor and Director, Center for the Study of Mergers and Acquisitions, University of Miami School
of Law, and Tax Policy Advisor (on behalf of the United States Treasury Department), Ministry of Finance,
Republic of South Africa. The author would like to thank Tarek Sayed, a 1998 graduate of the University of
Miami School of Law and a student in the Graduate Program in Taxation at the University of Miami School of
Law, and Gheri Hicks, a third-year student at the University of Miami School of Law, for their assistance in the
preparation of this art icle.
300 The Journal of Corporation Law [Winter
Table VV (Part 2)
Computation of Conrail’s WACC
[Percentage
of Equity in
Capital
Structure
D + E
Cost of
Equity
(See column
[9][f])
Weighted
Average
Cost of
Equity
[Column [4] plus
column [7]]
(See Appendix A
column [11][g])
1. 100% x 11.8% = 11.80% 11.8%
2. 90% x 12.1% = 10.89% 11.5%