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investor expects to receive to compensate for the additional risk associated with investing in equities as opposed to investing in U.S. Treasuries. The historical equity risk premium can be calculated by subtracting the long-term average of the return on the riskless asset (Treasuries), from the long-term average return of the broad-based stock market. By using the long- term average of the historical rates of returns one assumes that the historical average will be representative of the long-term expected future results. The expected size risk premium is the compensation required to attract an investor into purchasing a smaller company stock that presumably may be less liquid and have an increased cost of capital. The size risk premium is developed from studies of publically traded companies, concluding that over the long- term average, investors have been compensated by higher rates of return for investing in smaller stocks. The equity risk premium and the size risk premium discussed above are statistical calculations that are derived from publically traded stocks on the stock market. Yet many small, privately held corporations have additional risks that are unique to that company, and that do not correlate to the broad-based, publically traded markets. These risks relating to the specific company cannot be diversified away, and investors expect to be compensated for taking on the risks of the specific company. After determining the appropriate benchmarks from the market risks calculated above, the valuation analyst must determine the additional specific company risk premium, if any, to apply to the subject company to determine the capitalization rate. While this portion of the analysis is more subjective than the statistical determinations made above, a thorough study of the subject company is imperative to properly analyze the acceptable level of risk and reward for the hypothetical buyer. For example, assume that the U.S. Treasury long-term rate of return is 3.5 percent, the average additional equity risk premium from the stock market is 7 percent, small stocks in the market earned an additional 4 percent and the risks determined for the specific subject company add an additional 2.5 percent; then the investor's required rate of return would be 17 percent. Therefore, the valuation expert would determine what a willing investor would pay for the company to achieve the desired rate of return from the company's earnings of 17 percent. Is the valuation of a business affected by the number of and/or the r A valuation expert usually begins by valuing the business taken as a whole. However, if the client only owns a portion of the business, the valuation expert may need to discount the value of the business based upon the client only owning a minority portion of the business, or due to the lack of marketability related to the number of different ownerships. reaching a conclusion as to the value of a business? In preparing an opinion of value, the various approaches are 14 the philadelphia lawyer Fall 2015