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The Valuation Impact of Using the Wrong Leverage Ratio to Unlever Betas

Recognize and Avoid Substantial Valuation Differentials One of the critical inputs in the capital asset pricing model (CAPM) is beta. In practice, there are two typical ways beta is estimated. Making an incorrect assumption could lead to substantial valuation differentials of over 10% in many cases and can lead to valuation differentials of over 50% in some instances. In addition, our analysis indicates tha ...

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Home Health and Hospice Enterprises

Fair Market Value Considerations (Part II of II) The first of this two-part series reviewed the unique value drivers that impact the typical valuation approaches, methods, and techniques that are often utilized in determining the value of these enterprises in the current healthcare delivery system. This second part will discuss the value drivers related to home healthcare and hospice enterprises. Introducti ...

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In re Appraisal of DFC Global

A Study of the Experts’ Inputs and Court Opinion How does a court go about deciding a valuation case when two experts oppose each other? The author examines the DFC Global Corporation decision to see what that reveals and how that may impact an expert’s future engagement. The author finds three takeaways for readers. ...

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Distribution Policy in 30 Minutes

Distribution policy addresses both how much cash flow should be distributed to shareholders and the ideal form of such distributions.  The purpose of this whitepaper is to help directors formulate and communicate a distribution policy that contributes to shareholder wealth and satisfaction. To read the full article in Mercer Capital's Financial Reporting Blog, click: Distribution Policy in 30 Minutes. This ...

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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 Finance in 30 Minutes

Corporate finance does not need to be a mystery, states Travis Harms, Mercer Capital’s Financial Reporting Valuation Group lead.  The goal of this whitepaper is to give directors and shareholders a vocabulary and conceptual framework for thinking about strategic corporate finance decisions, allowing them to bring their perspectives and expertise to the discussion. To read the full article in Mercer Capital' ...

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Quality of Earnings

When Performing a Business Valuation Earnings are not always objective and valuations apply a multiple to earnings to determine a company’s value. The elements making up a company’s valuation involve determining normalized earnings, a decision whether income taxes would be applied, and the capitalization rate to be used to get the value. There are also other factors, but this article looks at the quality of ...

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Iterating the Weighted Average Cost of Capital

When Valuators Use a Weighted Average Cost of Capital (WACC) to Determine a Discount Rate, the Rate Needs to Be “Iterated.” Here’s Why. When an expert determines a discount rate for a controlling interest in a valuation using the Weighted Average Cost of Capital (WACC), that discount rate needs to be iterated. Since market values of debt and equity in a closely held company are not publicly traded and known ...

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Case Law—State: Ohio Rules on Experts, and Delaware on Share Value

Cases in Ohio, Delaware Assess Acquisition Share Value, Family Business In Iacampo v. Oliver Iacampo, the Ohio Court of Appeals rules on the appropriate use of experts in valuing a family business, the nature of passive income, and financial help from the wife’s parents. In Delaware,  Gaerreald v. Just Care, Inc. turns on proper methods for determining share value, the value of an expert opinion, and defere ...

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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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