Business Valuation Review Volume 43: Issue 1

Volatility is an important input in the pricing of financial contracts that have option features, specifically nontraded contracts that need valuation for financial reporting or income tax reporting purposes. Often these contracts are issued by closely held companies whose shares are not traded, and thus, their value is not directly available. In this instance, the equity volatility is determined based upon a set of volatilities of guideline publicly traded companies (GPCs). These GPCs are often larger and have a different capital structure than the subject company. This article provides an up-to-date description of the current methods used to adjust the volatility for differences in size and leverage. Detailed examples are provided as well as guidance based upon our practical experience.

Intangible asset value is frequently estimated through consideration of a discounted cash flow analysis. Included as a component of the future cash flow forecast is the tax amortization benefit from amortizing the value of the intangible asset. The amortization tax benefit creates incremental cash flows associated with the intangible asset and reflects the income tax shield attributable to amortization of the asset over its tax life.

Chancellor McCormick of the Delaware Court of Chancery (the “Court”) issued an appraisal opinion that discussed the application of the guideline public company method (“GPC”). For the first time in nearly two decades, the Court directly addressed the applicability (or inapplicability) of a control premium to the GPC method, specifically declining to apply a control premium for the reasons set forth in her opinion and described herein. The main takeaway for appraisers is that if she/he applies a control premium to the GPC method in the Court (and potentially elsewhere), she/he must (i) provide reasoning as to why share prices of the selected GPCs suffer from a discount for lack of control and (ii) provide sufficient support in the selection of a control premium.

The J. Mack Robinson College of Business and Department of Finance are proud to host the 9th annual Business Valuation Competition. The competition was founded and developed by Professor Herbert Kierulff and previously hosted by Seattle Pacific University. We are grateful for their contributions and continued support. In honor of Dr. Kierulff’s work, the “Kierulff Cup” trophy will be awarded to the first-place team. This year, substantial cash prizes will be awarded to the top three teams ($5,000 for first, $3,000 for second and $2,000 for third place).

The Challenge is an Undergraduate and Graduate student competition where a team

From the Editor

Size- and Leverage-Adjusting Volatility

Tax Amortization Benefits and Intangible Asset Valuation

Delaware Chancery Court Addresses (In)Applicability of Control Premium in GPC Method

Book Review

BVC Chair Column

Call for Participants

Erratum

Volume 43, No. 1 — Complete Issue

From the Editor

Customer Concentration: Good, Bad, or Ugly?

From the Chair

Delaware Valuation Decisions, 2021 to 2024

Volume 44, No. 1 — Complete Issue