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Old 11-27-2005, 04:31 AM
Evan Evan is offline
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Join Date: Jun 2004
Location: sthief09: im kinda drunk from the nyquil
Posts: 1,562
Default Re: EVA and Buffett/Munger

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This is where measures like beta come in to play. Bear in mind, a cost of equity calculation does not require beta, it’s just something that’s historically been used a lot.

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Hmm, I'm pretty sure that their criticism is that the promoters of EVA use Beta to calculate cost of equity. It's "Beta" they've long derided as twaddle, as they regard it as meaningless and with zero correlation to capital costs or equity risks.

Of course they've been imposing hurdle rates on their subsidaries since the sixties. So they don't disagree with estimating a cost of capital, they just don't think there is a formula for it.

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I think you guys are both saying the same thing. The OP was talking about calculating the cost of equity in general (in the passage you quoted), not specifically the EVA method.
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