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

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  • Joseph Tham
  • Ignacio Velez-Pareja

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.

Suggested Citation

  • Joseph Tham & Ignacio Velez-Pareja, 2003. "The Holy Grail in the Quest for Value (with Alpha Methods and Omega Theories)," Proyecciones Financieras y Valoración 3597, Master Consultores.
    • Handle: RePEc:col:000463:003597
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    Keywords

    Cost-Benefit Analysis;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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