I want to estimate the premium for illiquidity in WACC, Arzac suggests the following formula:
d*(k-g)/(1-d) where d= illiquidity discount, k=cost of equity, g=growth rate.

is there any literature for widely accepted? and if not, how can I estimate illiquidity discount ("d")?

Question

I want to estimate the premium for illiquidity in WACC, Arzac suggests the following formula:
d*(k-g)/(1-d) where d= illiquidity discount, k=cost of equity, g=growth rate.

is there any literature for widely accepted? and if not, how can I estimate illiquidity discount ("d")?

anonymous · Answer

i m sorry there is no literature about it, you can find a data basis call
ibbotson yearbook that yearly publishes the size premium that is closest to iliquidity premium,
as i am finance professor i can tell you that the valuators uses the CAPM model:
Ke:  Rf + B (L) x ( Rm-Rf)  + Liquidity premium
you aply this premium in the Cost of equity formula, doesn´t make sense to apply directly from the wacc formula