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Are Terminal Values Typically Too High, Too Low, Or Just Right?

Beyond the Tale of the Three Bears Terminal values deserve substantial attention for the reason that that is where (most of) the value is found. Some approaches to terminal value tend to result in higher values, whereas other approaches tend to result in lower values. This article provides some insight into the implied assumptions and relative biases of these approaches. Terminal values deserve substantial ...

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Terminal Value

The Problem with Exit Multiples Most of an Income Approach-based valuation is frequently in the terminal value. Thus, an Income Approach-based valuation that relies on an exit multiple to arrive at a terminal value is essentially a Market Approach-based valuation in disguise. Many practitioners do not use an exit multiple to arrive at a terminal value for this reason. Nevertheless, numerous practitioners pr ...

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Finding “True North” in Recent Delaware Appraisal Cases

Is it the Market or the Model? Petitioners in Delaware appraisal cases must necessarily argue that fair value exceeds the deal price. In contrast, financial economists tend to view prices from a well-functioning market as “true north” when valuing a stock. Valuation models—such as a discounted cash flow (DCF) model—+can be important tools but are known to be sensitive to their numerous inputs. When such a m ...

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A Valuation Practitioner’s Musings

on Corporate Income Taxes What corporate tax rate should valuation practitioners use going forward given the current environment? Despite corporate rates being “permanent”, is that so?! How should practitioners handle temporary differences? How do we decode a financial statement? In this article, the author shares his thoughts on how valuation professionals should approach a valuation engagement in this unc ...

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The Discount Period for the Terminal Value

Is Not Debatable This article explains why the undiscounted terminal value as of a future date must be discounted back by (a) N – 0.5 years when the traditional perpetuity method with a mid-period convention is used, (b) N years when the traditional perpetuity method with an end-of-period convention is used, or (c) N years when an exit multiple is used. ...

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Valuation Expertise is Necessary to Navigate Chapter 11

Once a petition for Chapter 11 is filed with the bankruptcy court, the company usually undertakes a strategic review of its operations, including opportunities to shed assets or even lines of businesses.  The Chapter 11 reorganization process concludes when the bankruptcy court confirms a reorganization plan which specifies a reorganization value and which reflects the agreed upon strategic direction and ca ...

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