Market Results

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2017
Valuation Handbook
U.S. Guide to Cost of Capital (Preview Version)

This document is an abbreviated “Preview Version” of the key year-end (December 31, 2016)
valuation data available in the hardcover 2017 Valuation Handbook – U.S. Guide to Cost of
Capital.

This document is made available to purchasers who have pre-ordered the 2017 Valuation
Handbook – U.S. Guide to Cost of Capital. The purpose of this document is to provide key year-
end 2016 valuation data to pre-order purchasers while the hardcover 2017 Valuation Handbook
– U.S. Guide to Cost of Capital is being printed.

The 2017 Valuation Handbook – U.S. Guide to Cost of Capital will ship in mid-March 2017, and
will include two sets of valuation data:

 Data previously available in the SBBI® Valuation Yearbook; and

 Data available in the Duff & Phelps Risk Premium Report.

 CRSP Deciles Size Premia Study: Key Variables
As of December 31, 2016

Yield (Risk-free Rate)

Long-term (20-year) U.S. Treasury Coupon Bond Yield 2.72%

Equity Risk Premium1

Long-horizon expected equity risk premium (historical) : large company stock total
returns minus long-term government bond income returns 6.94

Long-horizon expected equity risk premium (supply-side) : historical equity risk

premium minus price-to-earnings ratio calculated using three-year average earnings 5.97

Duff & Phelps recommended equity risk premium (conditional) : The Duff & Phelps
recommended ERP was developed in relation to (and should be used in conjunction
with) a 3.5% “normalized” risk-free rate.2 5.50

CRSP Deciles Size Premium3

Market Capitalization Market Capitalization Size Premium

of Smallest Company of Largest Company (Return in
Decile (in millions) (in millions) Excess of CAPM)
Mid-Cap 3-5 $2,392.689 – $10,711.194 1.02%
Low-Cap 6-8 569.279 – 2,390.899 1.75
Micro-Cap 9-10 2.516 – 567.843 3.67

Breakdown of CRSP Deciles 1-10

1-Largest $24,361.659 – $609,163.498 -0.35%
2 10,784.101 – 24,233.747 0.61
3 5,683.991 – 10,711.194 0.89
4 3,520.566 – 5,676.716 0.98
5 2,392.689 – 3,512.913 1.51
6 1,571.193 – 2,390.899 1.66
7 1,033.341 – 1,569.984 1.72
8 569.279 – 1,030.426 2.08
9 263.715 – 567.843 2.68
10-Smallest 2.516 – 262.891 5.59

Breakdown of CRSP 10th Decile

10a $127.296 – $262.891 4.09%
10w 190.553 – 262.891 3.10
10x 127.296 – 190.383 5.33
10b $2.516 – $127.279 8.64%
10y 73.561 – 127.279 7.21
10z 2.516 – 73.504 11.63

1
See Chapter 3 for complete methodology.
2
See Exhibit 3.19.
3
See Chapter 7 for complete methodology.
Note: Examples on how these variables can be used are found in Chapter 8.

Sources of underlying data: 1.) CRSP U.S. Stock Database and CRSP U.S. Indices Database © 2017 Center for Research in Security Prices (CRSP®),
University of Chicago Booth School of Business. 2.) Morningstar Direct database. Used with permission. All rights reserved. Calculations performed
by Duff & Phelps, LLC.

2017 Valuation Handbook – U.S. Guide to Cost of Capital (Preview Version) 19