Interesting. Yes, tolerance for risk varies with each investor, but isn't there supposed to be a consensus way that the market prices risk, on average? I'm just throwing out terminology here, but what about "risk-adjusted return"? Other things being equal (which they never are), prices should be lower for higher-risk investments, to compensate for the risk taken.
So I'm wondering how enterprise value prices risk compared to market value.
> isn't there supposed to be a consensus way that the market prices risk, on average?
Consensus on the price of risk, yes. Consensus on risk preferences, no. :) I.e. two people can agree that a one year US Treasury Bill paying 0.50% interest is worth exactly par, and yet come to completely different conclusions about whether they want to own it at that price.
I.e. you're absolutely right about achieving a consensus on how to value an asset, but people's differing risk preferences are a major reason we have markets in the first place - it's not just zero-sum wagering on what will go up and what will go down.
> So I'm wondering how enterprise value prices risk compared to market value.
To the extent a company has debt, the risk (and expected return) of its equity will always be higher than the risk (and expected return) of an identical company without debt: the equity holders have levered up by borrowing and magnified their risk and potential return. I don't know if that answers your question or not, though.
So I'm wondering how enterprise value prices risk compared to market value.