Use in Private-Business Valuation (Part II) This article in this continuing series explains the Implied Private Company Pricing Line (IPCPL), theory, evidence, and application of the IPCPL. How to Understand IPCPL Theory In the first article in this series (published in two parts 02/01/24 and 02/08/24), it was shown that the Implied Private Company Pricing Line (IPCPL) theory explains and predicts the relationship between a capital asset seller’s opportunity cost of capital (OCC) and a buyer’s OCC. That difference is attributable to transaction costs, which is assumed to be a function of the fair market value (FMV) of the capital…
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Use in Private-Business Valuation (Part II of II) This two-part article in this continuing series explains the implied private company pricing line (IPCPL). Read Part I here. IPCPL explains and predicts how buyers and sellers of capital assets in private markets set risk-adjusted discount rates under conditions of non-zero transaction cost differentials between public and private markets; and, accordingly, IPCPL explains and predicts the shadow price of liquidity risk—the price of liquidity risk were it traded directly in private capital markets. 1.4 What is lacking in existing business valuation theory? It turns out that existing business valuation theory is lacking…
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Use in Private-Business Valuation (Part I of II) This two-part article in this continuing series explains the implied private company pricing line (IPCPL). IPCPL explains and predicts how buyers and sellers of capital assets in private markets set risk-adjusted discount rates under conditions of non-zero transaction cost differentials between public and private markets; and, accordingly, IPCPL explains and predicts the shadow price of liquidity risk—the price of liquidity risk were it traded directly in private capital markets. What is IPCPL Theory? Despite widespread misunderstandings of implied private company pricing line (IPCPL), it can and will be shown in this article…
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Move Out of Your Comfort Zone In this month’s column, Rod Burkert discusses embracing risk and a growth mindset. If you are unhappy with your practice for any reason, is it because you are playing it too safe … too small? Is your reluctance to take risks (which aren’t really risks) holding you back from reaching the next level … whatever that might be for you? Read on, learn from a seasoned BVFLS expert. If you’re unhappy with your practice for any reason, is it because you are playing it too safe … too small? Is your reluctance to take…
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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.