Four Horsemen of the Credit Apocalypse

November 15th, 2008 | Income Approach & Methods | Market Approach

In my presentation with Don Barbo at the AICPA/ASA BV Conference in Las Vegas last Tuesday,I observed that the current crisis in the debt markets has a 3-fold impact on the cost of capital. First, debt may be unavailable or of limited availability, resulting in more equity in the capital structure.  Second, the debt may be more expensive. Finally, equity is more expensive than debt. I now would add that given the high level of uncertainty, equity itself is more expensive, so there is a 4-fold impact from the finance-equivalent of the Four Horsemen of the Apocalypse.  Naming those Apocalyptic Riders: Ambiguitas, Vereor Bestia, Fraudatio, Politico.

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