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Estimating Debt Betas and Beta Unlevering Formulas

Use of Benninga-Sarig to Estimate Debt Betas in a Valuation Engagement In the July 8, 2016 In re Appraisal of DFC Global Corp. Opinion (DFC Opinion), the Court of Chancery of the State of Delaware suggested that debt betas should be estimated for individual companies and it cited Pratt and Grabowski’s Cost of Capital as a source for debt betas based on the firm’s credit rating. In addition, the Court also a ...

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Capital Structure in 30 Minutes

Capital structure decisions have long-term consequences for shareholders.  The purpose of this whitepaper is to equip directors and shareholders to contribute to capital structure decisions that promote the financial health and sustainability of the company. To read the full article in Mercer Capital's Financial Reporting Blog, click: Capital Structure in 30 Minutes. This article is republished from Mercer ...

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Corporate Taxes, Other Pro-Growth Policies, and Business Value—A Brave New World?

The inauguration of a new POTUS is now behind us.  Time, then, to add to the cacophony of pop-prognostications.  This blog post will make broad observations regarding potential changes to select corporate tax and other pro-growth economic policies in hopes of teasing out inferences for inputs to a basic valuation framework. To read the full article in Mercer Capital's Financial Reporting Blog, click: Corpor ...

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Capital Budgeting in 30 Minutes

Switching costs for capital investment are high and do-overs are expensive.  Travis Harms, Mercer Capital’s Financial Reporting Valuation Group lead, shares this whitepaper in order to assist directors and shareholders in evaluating proposed capital projects and contributing to capital budgeting decisions that enhance value. To read the full article in Mercer Capital's Financial Reporting Blog, click: Capit ...

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Book Review—A Consensus View Q&A Guide to Financial Valuation

Hitchner, Pratt, and Fishman Answer the Call In the past month, business valuation professionals have read reviews from a number of practitioners serving as reviewers for the Q&A Guide. All of them are positive. In this book review, we go into a little more detail and discuss what these established and accomplished business valuation professionals and leaders answer in the Q&A Guide. So, what does t ...

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Book Review—Taxes and Value

The Ongoing Research and Analysis Relating to the S Corporation Valuation Puzzle What premium, if any, should S Corporations command? How reliable are the current models? How reliable is the evidence that supports the position of the leading U.S. Tax Court cases? What should valuation analysts and consultants consider as they advise newly formed corporations considering making the S election and S corporati ...

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Utilization of the Asset/Cost Based Approach

In Appraising Outpatient Enterprises Healthcare related outpatient enterprises are those that provide services that do not require hospital admission and may be performed outside the premises of a hospital. Valuation of healthcare related outpatient enterprises, similar to the valuation of any business, should include consideration of the three general approaches to valuation, i.e., the income approach, the ...

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Yes, Virginia, the Cost of Capital Really is Low

Calculating a prospective return takes into account many factors.  Travis W. Harms, Mercer Capital’s Financial Reporting Valuation Group, discusses what impact a “hefty” purchase price could mean for returns. To read more about the results of this report in the Mercer Capital's Financial Reporting Blog, click: Yes, Virginia, the Cost of Capital Really is Low. This article is republished from Mercer Capital' ...

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M&A Advisory Services

The next generation Pursuing an acquisition for the sake of improving the top line is risky.  A company can focus on creating value by reducing their cost of capital and thereby improving their risk profile.  Business valuation analysts are uniquely positioned to offer advice on risk and devise strategies for corporate clients to reduce risk exposure.  These measures usually lead to improved sales, profitab ...

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Implied Private Company Pricing Line Provides Cost of Capital Comfort

New private company cost of capital model delivers consistent and observable results The Implied Private Company Pricing Line (IPCPL) Cost of Capital Model seeks to eliminate pitfalls for unsystematic risk, liquidity, small stock premium, PTE taxes, and cash/leverage by utilizing real transaction, market-clearing prices between buyers and sellers of comparable small private businesses. ...

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Morningstar Discontinues SBBI Valuation Yearbook

Summary and Solutions Morningstar announced in September 2013  it will discontinue publishing the SBBI Valuation Yearbook, but that it will continue to publish the Ibbotson SBBI Classic Yearbook.  James Harrington, who was previously director of business valuation research in Morningstar's Financial Communications Business, provides a summary of which data is being discontinued and continued, along with a d ...

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Country-specific Cost of Capital is ‘By Far’ Damodaran’s Most Popular Download —BVWire News

Particularly When Valuing Companies with Substantial Foreign Operations, Business Valuation Analysts Know That Country-Specific Input Is Critical  David Foster at BVWire News reports that in additional to his general data update for 2013, Prof. Aswath Damodaran (NYU Stern School of Business) provides a list of country default spreads and risk premiums.  Here's the professor's assessment: ...

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Do You Know What Your Business Is Worth? You Should. —New York Times

Few Business Owners Seem to Even Know How to Make a Good Guess at What Their Business is Worth.  NY Times Introduces Technology to Help—and Certified Advisers Provide Extra Value.  Mark Cohen, at The New York Times Small Business Guide, reports:  "At 53, Joe Ritz is old enough to remember a time when many of the classic cars that now pull into his specialized repair shop were new. “It’s one field where it p ...

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Rob Slee Draws Distinctions: Distressed Deals, Healthy Deals, Zombie Deals, and What’s Important to Value Creation —MidasNation

MidasFund Will Not Acquire Distressed Companies; However, it Will Buy Stable Divisions of Bankrupt Companies.  Here's Why.   "Last week’s announcement that MidasFund had started acquiring zombie companies caused a flurry of emails," writes Rob Slee on the MidasMoments blog of the MidasNation site.  "Many of you asked about the differences between acquiring distressed, zombie and healthy companies. Let’s dig ...

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Private Capital Markets: The Major Themes

There’s Lots We Know about Private Capital. There are Things We Don’t Know, too—and Need to Be Aware of. Robert T. Slee explains in this excerpt several key macro insights—and related themes—that his recent book Private Capital Markets is based on.  The macro insights are that corporate finance theory doesn’t predict behavior in private capital markets, and valuation, capitalization, and transfer are not di ...

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For What It’s Worth: Dirty Harry and Business Valuation

Valuators Must be More Than “Lucky Punks” How can appraisers best figure the cost of equity capital? Rand M. Curtiss argues that using standard tools including Ibbottson, Duff & Phelps, CAPM, or the Butler-Pinkerton model aren’t enough. What to use instead? Curtiss suggests starting with a look at the rate of return on mezzanine money and the rate of return on later-stage VC investments. Find out why. ...

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Book Review: Middle Market M&A: Handbook for Investment Banking and Business Consulting

40 Percent of the U.S. GDP is in Privately Held Businesses. Here’s What You Need to Understand and Operate in This Market. Performing business valuation and mergers and acquisition work requires understanding a number of core discipline areas. With the expanded understanding of middle market finance, it is helpful to have a roadmap to complete any successful transaction or engagement.  ...

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Rob Slee at MidasNation: “Economic Armageddon Day is Here!” —MidasNation

The U.S. Must Cut $800 or $900 billion From Our Annual Government Spending to Maintain Mid-term Economic Solvency.  And That's Just the Beginning.     Flooding the system with trillions of dollars and deficits has bought the U.S. economic stagnation, writes Rob Slee in an August 20, 2012 post at MidasNation.   "What a lost opportunity. One thing we learned in MidasNation over the past few years is that when ...

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Why Capital Structure Matters: Cost of Capital, Debt/Equity Balance are Key to Successful Appraisal. —TimesFreePress

Relative Levels of Equity and Debt Affect Risk and Cash Flow.   This Has Substantial Impact on Amount Investors Will Pay.     Matt Stelzman notes in the Chattanooga News TimesFreePress that the question that often arises in connection with a business valuation is whether the valuator should use the company's actual capital structure or its anticipated future capital structure. A valuator might also use a pr ...

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