Abstract

Business valuation experts have lost credibility because they cannot support the company-specific risk premium (CSRP) in the capital asset pricing model (CAPM). Although most valuation and finance professionals agree that risks beyond market risk as measured by beta (β) increase a private company's cost of common equity (K_e), they have been unable to agree on the effect.

Abstract

Business valuations are a common subject of dispute in tax and divorce litigation, with the valuation consequences of private-company status of a closely held (often family) business being especially contentious. It is not well known that core valuation methodologies such as DCF analysis have the effect of discounting the future cash flows of small businesses substantially, generally by 40% to 60%, dollar-for-dollar, for lack of size alone. Because there is a strong empirical relation between size and liquidity, there is a great likelihood that any supplemental discounting for illiquidity will be redundant and entail double discounting. Accordingly, the large illiquidity discounts or discounts for lack of marketability (DLOMs) that are accepted practice in business valuation and that have been embraced by many judges presumptively violate the Daubert requirement for reliability.

Abstract

The valuation of customer relationships relies in large part on the analysis of historical customer attrition rate behavior—a key factor in forecasting the economic benefits attributable to such relationships. A variety of methods are available to an appraiser in analyzing customer attrition rate behavior, including constant rate attrition analysis that focuses on customer, or revenue, attrition and actuarial attrition analysis that focuses on the attrition of customers or revenues. In considering which of these methodologies to apply in regard to a particular engagement, the appraiser is often limited by the detail and magnitude of the historical customer purchase information that is available. However, when significant and detailed historical data are available, the appraiser must be aware of the implications inherent in applying one attrition methodology over another. The attrition rate behavior indicated by the various attrition analysis methodologies can vary significantly, resulting in widely divergent indications of value.

This Time Is Different: Eight Centuries of Financial Folly

By Carmen Reinhart and Kenneth Rogoff

Introduction

Typically economists take a narrow view—say three decades—to study fundamental issues. This book introduces a new 800 year comprehensive database for studying international debt and banking crises, inflation, currency crashes and debasements. Their overall dataset includes 66 countries in Africa, Asia, Europe, Latin America, North America and Oceania. It shows that it is the norm—not the exception—to have banking crises and debasement, and they tend to occur in waves. In various sections the authors use different datasets to illustrate their positions.

The first parts

Editor's Column

Using Total Beta and the Butler Pinkerton Calculator to Solve the CAPM Credibility Problem

Abstract

Business Valuation, DLOM, and Daubert: The Issue of Redundancy

Abstract

In Defense of Discounts for Lack of Marketability

Valuation of Customer Relationships—Choice, Application, and Results of Various Attrition Analysis Methodologies

Abstract

Customer Renewal Probabilities and Population Life Expectancy

Abstract

Book Review

Book Review

Introduction

From The Chair

Volume 29, Issue 3

From the Editor

Customer Concentration: Good, Bad, or Ugly?

From the Chair

Delaware Valuation Decisions, 2021 to 2024

Volume 44, No. 1 — Complete Issue