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State Case Law: Rulings Turn on Appraisal Requirement, Value of Intangible Contribution

Appeals Courts in Iowa and Mississippi Settle Divorce Disputes The Mississippi Court of Appeals reverses a trial court’s ruling in Marter v. Marter because of a valuation without sufficient evidence, and the Iowa Court of Appeals affirms the value of a wife’s intangible contributions to a business in re Marriage of Kinser.  ...

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Georgia Case Turns on Memorandum of Agreement Establishing Valuation Methodology

More: A Case in Texas Turns on a Husband and Wife with Differing Appraisals of a Business That’s Declined in Value Peter Agrapides gathers recent federal cases bearing on valuation and family law. In Georgia, a county issues bonds to finance a regional warehouse built by the corporation; the parties agree to use a certain valuation methodology, and since agreement is mentioned in the lease, the Georgia Cour ...

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ESOPs―The Swiss Army Knife of Liquidity Strategies

ESOPs serve as a utilitarian strategy for business owners looking for unique and effective ways to improve employee benefits and business flexibility. William Stewart explains how an ESOP, depending on how you set it up, can function like a Swiss Army Knife. Depending on how you set it up, an ESOP is fully flexible. ESOPs, for instance, offer buyers and sellers a wide range of purchasing options that can va ...

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Understand the Value of an Insurance Brokerage —Mercer Capital White Paper

Most Business Owners Understand Interim Cash Flows.  But Terminal Cash Flow May Be Most Important: More Detail on Standards of Value.  Lucas M. Parris at Mercer Capital has authored a white paper at Mercer Capital that posted last month titled Understand the Value of an Insurance Brokerage that guides consultants through the process of selling out, selling in [transferring ownership to heirs], putting toget ...

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How to Minimize the Impact of Divorce on Your Small Business

Divorce Proceedings Can Stall Operations, Distract Key Employees, and Require Expensive Outside Counsel. Here’s How Good Planning Can Mitigate the Costs. Solid legal counsel, pre- and post-nuptial agreements, shareholder agreements, confidentiality, and structured settlements can all ease the strain on a small business during a divorce proceeding, explains Jennifer A. Brand at the Fox Small Business Center. ...

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Case Law: States Opt for Accredited Appraisers, Limit Expert Testimony, Consider Contracts

In Nebraska, Judge Considers: Should Damages be Limited to the Length of a Non-Compete Clause? The Supreme Court of North Dakota prefers the testimony of an accredited appraiser, a Tennessee court asks an expert witness to stick to the topic rather than allowing him to recommend an alternative legal remedy, and a Nebraska court considers whether damages should be limited to those incurred during the period ...

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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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Appraisers are Gatekeepers to Gift Tax Deadline —Reuters

Today Individual Federal Gift Law Exemption is $5.12M.  In Months it May Drop to $1M.  Result: Surging Demand for Appraisals.    Lou Carlozo at Reuters reports that faced with the possibility of the lifetime gift tax exemption dropping precipitously next year and the estate tax rate rising, wealthy individuals are rushing to transfer their assets to family members. More: ...

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Mercer: Understanding The Income Approach to Marketability Discounts—Valuation Speak

Enterprise Value is a Perpetuity Concept, but Shareholder Level Values Depend on Expected Holding Periods.  Here’s Why the Difference Matters.  The conceptual logic regarding the income approach is difficult to refute, writes Chris Mercer on the Valuation Speak blog.  What can cause expected cash flows to minority shareholders to be less than the expected cash flows of the enterprise? What can cause the exp ...

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How to Set up Buy-Sell Agreements

Recommended Valuation Process for Buy-Sell Agreements: Single Appraiser Chris Mercer tells how to set up a Buy-Sell Agreement for closely held and family businesses. He identifies three key procedures: Owners should select an appraiser for their business when they create the Buy-Sell, that appraiser should offer an initial baseline valuation for the Buy-Sell, and the named appraiser should continue to value ...

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Valuing David Einhorn’s Portfolio—The Discounted Cash Flow Model —NASDAQ Community Site

GuruFocus Adds New Valuation Tab to Site; New Feature Automatically Calculates DCF Valuation.  What are Top 10 The Nasdaq Community site notes the appearance of a new Valuation tab at its GuruFocus web site.  Learn about how DCF analysis works, why it's considered a reliable method of analysis, and view some top current stock picks of an investor who uses the method:    ...

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In an Unusual Tax Year, the Wealthy Turn to Partnerships —NY Times

Wealth Managers: Proceed with Caution When Setting Up an FLP Once an esoteric way for families to centralize management of assets, the Family Limited Partnership (FLP) is becoming extremely popular this year, writes the New York Times.  Why?  Because of the scheduled expiration of the $5.12 million gift tax exemption at the end of this year.   Still, setting up an FLP doesn’t make sense for all companies.  ...

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Palmerino v. Palmerino & Giaimo v. Vitale

In Palmerino v. Palmerino, the Massachusetts Court of Appealsconsidered whether a trial court erred in valuing the husband’s grocery store. The trial court’s approach had not included discounts—and went further to state that the income approach is preferable for valuation.  Find out what the court decides!  In Giaimo v. Vitale, the Supreme Court of New York considers the dissolution of a company called EGA ...

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Capitalized Earnings: When are the Earnings Stabilized?

Capitalized Earnings: When are the Earnings Stabilized? When you're doing a business valuation, should you use a Capitalization of Earnings/Cash Flows? Or should you use a Discounted Earnings/Cash Flow method? Here's a rule of thumb: If the benefit stream will be constant over time, choose the Capitalized Earnings/Cash Flows. Richard Claywell explains. ...

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Case Law—State: Case Law—State: American Ethanol, Inc. v. Cordillera Fund, LP

Case Law—State: American Ethanol, Inc. v. Cordillera Fund, LP In American Ethanol, Inc. v. Cordillera Fund, LP, the Supreme Court of Nevada is required to weigh in on fair market value. A lower court had judged that stockholders were fairly paid some $1.75M (about $3 per share) for American Ethanol at the time of the merger. American Ethanol appealed, claiming it was worth more. Part of its argument was tha ...

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‘If Facebook’s Profit Model Stays the Same, This Valuation Doesn’t Make Any Sense’ –Espen Roback, Pluris, in The Atlantic

The most highly anticipated IPO in history didn't put on much of a show. Facebook closed today within decimal points of its opening price of $38. Even so, the company's market cap is higher than McDonald's or Pepsico. Espen Robak is the president of Pluris Valuation Advisors, where he studies and values private companies trading on the secondary market. Derek Thompson at The Atlantic talked to him this morn ...

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CFA Institute Speaker: The “Value at Risk” Model is of Limited Use in Assessing Risk

One of the problems with how financial institutions assess risk is that they rely on imprecise models.  Financial News'  Shanny Basar reports that in fact, just a few days before JP Morgan announced its multi-billion dollar trading loss, James Montier,a member of the asset allocation team at fund manager GMO, gave a speech on The Flaws of Finance. In the speech, delivered on May 6 at the 65th Annual CFA Ins ...

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Wall Street’s Sexiest Model: Black-Scholes

Blame Disaster on Bad Inputs. Black-Scholes Works. The last few years have given us plenty of reasons to hate financial models. Models that promised to increase efficiency and manage risk became substitutes for common sense and justifications for greed. The real estate bubble was of course justified by them. Yet people at hedge funds and trading firms, using models to mint money, remain passionate believers ...

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SEC Queries Private Equity Valuations

Increased Scrutiny for Private Equity Valuations The U.S. Securities and Exchange Commission has started an informal inquiry of private equity firms, asking for a broad range of documents on how the funds value assets and who invests in them, reports Bloomberg's BusinessWeek.   The agency’s Los Angeles office last year sent letters to several firms asking for details on fund investments and the valuation of ...

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