№ 9/2016

Fìnansi Ukr. 2016 (9): 79–

FINANCES OF THE INSTITUTIONAL SECTORS

NIKIFOROV , SEMENYUK Vitaliy

Implementation of the modified cumulative building model (modified build-up method, MBM) into the process of estimation cost of equity domestic corporations

The article studies modifications of the cumulative building model (build-up method) to identify the opportunities for their practical use with a view to estimate the cost of domestic corporations equity. The article characterizes core structural components of two basic modifications of the cumulative building models (BM1, BM2), and defines their essence and specifics of their application. The authors outline the possibilities of modifying the basic cumulative building models (MBM1, MBM2) for practical implementation in the process of estimating the cost of domestic corporations equity. The article proves the expediency of using fundamental indicators, which characterize the activity of a single corporation, in the cost of equity valuation. The authors propose their own approach to determining corporation`s risk premium for modified cumulative building models MBM1 and MBM2, determined by the average value based on six fundamental indicators, which describe the size of the corporation (the balance value of equity, the balance value of assets, net profit, the average income over 5 years, the average EBITDA over 5 years, the number of employees). The article focuses on benefits of the regression equations method, based on the data of developed stock markets, in assessment of the equity risk premium. The authors underline the need for taking account of individual risk assesment of corporations using a modified cumulative building model. The article highlights practical aspects of the modified cumulative building models МВМ1, МВМ2 for estimating the cost of equity of the domestic power distribution corporation. The factors that most influence the dynamics of changes in the cost of equity in Ukraine are found.

Keywords:equity, build-up method, risk-free rate, industry risk premium, market risk premium, country risk premium, fundamental indicators.

JEL: G12, G13, G15, G30, G32, G35.

NIKIFOROV . . Implementation of the modified cumulative building model (modified build-up method, MBM) into the process of estimation cost of equity domestic corporations / . . NIKIFOROV, V. Semenyuk // Фінанси України. - 2016. - № 9. - C. 79-.

Article original in Ukrainian (pp. 79 - 97)

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