This page includes drafts from a book I am writing about case studies of valuation mistakes, problems with valuation theory related to measuring cost of capital, incorrect use of IRR statistics, difficulties in applying real option theory and errors in applying cost of capital

Part 1 includes a number of case studies about valuation errors and attempts to find common threads that recur in valuation analysis related to assuming high returns can continue, not understanding fixed and variable costs, making agressive assumptions, relying on so-called experts who earn fees, mis-using ideas of real options, not understanding marginal cost and other things. Case studies such as Iridium, Dahbol, Eurotunnel, Constellation Energy and the California Electricity Crisis are discussed that included dramatic valuation failures.

Chapter 1 Files

Chapter 2 begins with discussion of the all pervasive IRR and why it has so many problems including: (1) not appropriately valuing long-term investments; (2) over penalising investments with so-called country risk; (3) not accounting for changes in risk over time; and (4) not directly measuring risk premiums.

Chapter 2 Page