The Market Approach to Valuing Businesses Workbook

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This is a dummy description. Put the principles of the market approach to valuing businesses to work! This is an indispensable, hands-on workbook to help valuation experts and those who want to be better understand the application of methods used in the increasingly prevalent market approach to valuing businesses. With convincing evidence of value for both buyers and sellers, the market approach can end stalemates and get deals closed. Acclaimed for its empirical basis and objectivity, it's the model most favored by the IRS and the United States Tax Court--as long as it's properly implemented.

A companion to the definitive book on the topic, The Market Approach to Valuing Businesses, Second Edition, this workbook includes questions and exercises that bring the concepts to life. It parallels the book and helps readers understand the methodologies. It also provides practical experience in applying the relevant theories and formulas. Perfect for CPAs, appraisers, corporate development officers, intermediaries such as brokers and investment bankers, venture capitalists, and consultants, this workbook can also be the basis for dynamic in-house training programs.

About the Author Shannon P.

Business Valuations

He has conducted numerous fairness and solvency opinions, has testified in a wide variety of federal and state courts across the country, and frequently participates in arbitration and mediation proceedings. Pratt is one of the most successful and respected authors in his field.

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Business Valuation Body of Knowledge Workbook, 2nd Edition

Sign Up for Newsletter:. Author: Gary R. One day, one week, two weeks, one month, and the Mergerstat unaffected price c. One day, one week, one month, two months, and the Mergerstat unaffected price d. One day, one week, one month, three months, and the Mergerstat unaffected price 41 42 Market Approach: Guideline Merger and Acquisition Method 3. If using guideline merger and acquisition transactions to value a minority interest by the standard of fair market value, which of the following discounts, if any, usually would be appropriate? Neither minority nor marketability b.

Minority but not marketability c.

Transaction Data

Marketability but not minority d. Both minority and marketability 4. Which of the following databases contains a mixture of companies that were public and companies that were private prior to the transaction? IBA Market Database 5. The proliferation of data on merged and acquired companies in recent years has made the merger and acquisition method much more feasible and widely used.

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The guideline merger and acquisition method is similar to the guideline publicly traded company method, but it deals with transfers of control interests rather than minority interests. Of the private company transaction databases, which has the largest number of transactions? Of the private company transaction databases, which has the most data per transaction? Chapter 13 Prior Transactions, Offers, and Buy-Sell Agreements Prior transactions a sale of either the entire company or minority interests can provide a source of the best evidence of value. Since they represent transfers of ownership, they are classified under the market approach.

True False 2. In researching prior transactions, acquisitions made by the company should be considered. True False 3. A buy-sell agreement that is legally enforceable is determinative of value for estate tax purposes. Since prior transactions, by definition, are at points in time different from the effective date of the current transaction, what two types of adjustments might be needed to account for the difference in time?

What four questions should the analyst investigate regarding prior offers for the company or an interest in it? Chapter 14 Adjusted Net Asset Method The adjusted net asset method also called the asset accumulation method adjusts all the assets and liabilities to fair market value. The difference between the value of the assets and the value of the liabilities represents the value of the company.

In the broadest application of the method, both tangible and intangible assets and liabilities would be included, whether or not they appeared on the balance sheet. Asset liquidations are a consideration. Purchase price allocations are required. Nonoperating assets are a factor. A manufacturing company is highly profitable; however, its equipment is well maintained but old and is heavily depreciated on the books.

Which approach is used most often in valuing intangible assets? Income approach b.

Market approach c. Cost approach d. Rules of thumb 3. Which of the following issues certifications in both real estate and machinery and equipment appraisal? American Society of Appraisers b. Appraisal Institute c. National Association of Certified Valuation Analysts d. What is usually the primary type of inventory for service firms? Raw materials b. Work in process c. Finished goods d. The term real estate is a subset of the broader term real property, with real estate representing the tangible elements of real property, such as land and buildings.

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  • The asset approach generally indicates a control value. So, if valuing a minority stock interest starting with the asset approach, the indicated value usually must be discounted for both minority status and lack of marketability. Since , the U. Tax Court sometimes has recognized a discount for a C corporation holding highly appreciated stock and at other times has rejected such a discount.

    Cost Approach, Market Approach, Income Approach

    When adjusting asset values on the balance sheet, what are the two primary premises of value? Chapter 15 Excess Earnings Method Possibly because it has been around so long and seems simple on its surface, the excess earnings method is widely used and also misused. Its apparent simplicity can be deceiving; the method is full of ambiguities and opportunities to go wrong.

    In what year was the excess earnings method first promulgated? Which Revenue Ruling addresses the excess earnings method? FINSummer

    In what legal context is the excess earnings method most widely used? Gift, estate, and income taxes b. Marital dissolutions c. Shareholder disputes such as dissenting stockholders and minority oppressions d. There is virtually unanimous agreement that the value estimated by the excess earnings method is control value. When the excess earnings method is used, its implementation is highly consistent. The IRS encourages the use of the excess earnings method for the valuation of intangible assets. Value Company ABC by the excess earnings method. Assuming that this is a small service business, is the value calculated by using the excess earnings method with the given assumptions a reasonable value?

    Why or why not? Chapter 16 Discounts and Premiums Often there is more money involved in the issues of discounts and premiums than in the issues leading up to the base value to which the discounts or premiums will be applied. Vast amounts of data exist to help quantify discounts for lack of marketability, which is fortunate, because the discount for lack of marketability is the largest and most frequent of the money disputes over discounts and premiums. In court, the analyst with the best empirical evidence to support his or her position usually wins, so the analyst should be thoroughly familiar with the data on discounts for lack of marketability.