Did Shannon Pratt implant the implied minority discount “weed?”
The IMD first appeared in Delaware Chancery cases in 1992 and 1995, but didn’t become entrenched until LeBeau v. M.G. Bancorporation (1998 Del. Ch. LEXIS 9), when the majority shareholders hired Shannon Pratt. In arguing for the application of the IMD, the dissenters pointed to an excerpt from Pratt’s Valuing a Buisness (3rd ed.1996), which [...]
Implied Minority Discounts: Has the Delaware Chancery Court got it wrong?
That’s a theme from a session at the ASA Advanced BV Conference this week. Full coverage of the problems with the current state of the law in shareholder oppression cases is coming up in the December issue of Business Valuation Update.
Can total beta really be used to measure risk for a single (undiversified) private company?
Academics and appraisers vary in their opinion as to whether total cost of equity, derived from capital market theory, can be extended to cover a single asset—particularly a private company. Damodaran says that while he’s not particularly attached to total beta, he’s true to the idea that we care about risk, and we recognize the [...]
Beta is inherently less constant than total beta
The least areas line gives a slope which is precisely total beta. Ordinary beta, however, mixes together the relative volatility AND the correlation of your investment compared to the market. So, if you rank assets by total and then by ordinary beta, you’ll get a different order. Volatility will appear higher or lower depending on [...]
IRS internal memo: any agent can now assess a penalty against you under 6695A
In a troubling glimpse into its procedures, the Internal Revenue Service issued an internal memorandum to examiners, estate and gift attorneys, and appellate officers regarding “Procedures for Implementing the Penalty for the Substantial and Gross Valuation Misstatements Attributable to Incorrect Appraisals Under IRC Section 6695A.” The memo—written in August 2009—only recently came to light after [...]
Damodaran: can you trust your risk free rate?
"Last year I went from believing I could think through any valuation problem on September 12th, to thinking I didn’t know the first thing about valuation by October 16th," Aswath Damodaran told the entire assembly at today’s ASA Advanced Business Valuation Conference keynote speech. "We got more than anything else a reminder of why we [...]
How about an implied equity risk premium app for the iPhone?
Aswath Damodaran says that, during the crisis, he built a tool that recalculated the ERP every fifteen minutes. “This is a good way to produce heart attacks,” he says, because you can see how this supposedly fairly stable component of the cost of capital actually changes–in a six month period he found his ERP, available [...]
Appraisal Foundation begins study of determination of control premia
Appraisal Foundation working groups are nearing completion of work on contributory assets, and valuing customer relationship assets. Their third working group on determining control premiums is beginning work now. Those interested in this topic should reach out to TAF now.
SEC staff find “frequent deficiencies” in valuation reports
A spokesperson for the SEC at today’s ASA Advanced BV Conference in Boston pointed out that “we look to valuation reports to learn more about what assumptions a company has made about valuations. Frequently we see deficiencies.” Obviously, these comments are from an individual at the SEC, and don’t reflect official position—but this staff member [...]
What’s up with the FASB Valuation Resource Group?
Minutes of their late-September meeting have not yet been posted, but they should appear in the next two weeks. A recording of the public part of the discussions is available on the FASB website. The VRG is composed of representatives of the Big 4 and other interested parties.
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