Risk Analysis for a Private Firm: A Case Study

ABSTRACT The investment decision for a firm involves a degree of risk that should be factored into that decision process. Ignoring risk analysis could result in higher costs than expected. This study looked at two methods used to calculate a beta for a private hospitality restaurant. A beta is the risk component of the Capital Asset Pricing Model (CAPM), which is a technique used to estimate the expected return on an investment. The pure-play and the analytical method were compared in estimating beta for a private firm. The two techniques resulted in different risk analysis conclusions. The analytical method appears to be a better beta estimator for a private firm.