VALUATION

LOST INCOME VALUATION

One issue of principal importance with respect to potential economic damages relative to the Gulf oil spill is the differentiation between potential damages fromLost Income vs. potential damages from Lost Income Capacity. These types of economic damages overlap to an extent but, ultimately, are quite different in their economic impact on an individual or a business.

http://www.nacva.com/QuickReadSearch/Content/FinancialForensics_September2010.html

VALUING ART FOR TAX PURPOSES

Even people who don’t collect art probably own a painting or sculpture or two. At some point, one of two things is likely to happen: One, the artwork will be given away, perhaps as a noncash charitable contribution for which the owner will claim an itemized deduction, or as a taxable gift. Or, two, it will wind up as part of the owner’s estate, the value of which may be subject to estate tax.  In any case, if the item is worth more than $5,000, the IRS will require more than a casual listing of what the taxpayer originally paid for it or an uneducated guess as to its current value. And even the best-researched taxpayer appraisal could be countered by the IRS’ own appraisal, perhaps resulting in far different values. Thus it’s important for CPAs advising taxpayers in such circumstances to be familiar with the requirements for appraisals and IRS policies and procedures for valuing artwork.

http://www.journalofaccountancy.com/Issues/2010/Jul/20092096.htm

THE DUMMIES GUIDE TO VALUING COLLATERALIZED DEBT OBLIGATIONS

I was reading A.K. Barnett-Hart’s now famous undergraduate thesis “The Story of the CDO Market Meltdown: An Empirical Analysis”. It’s impressive, it’s also a very well written and easy-to-read account of what happened; you can find a link to it here.  One of her conclusions, based on doing multivariate regression analysis was that the best predictor of a CDO default is the year it was written. For instance, if it used mortgages written in 2006 and 2007.  I’m not sure if I understood her table right but it looked like she got a 35% R-Squared on that.

http://seekingalpha.com/article/194744-the-dummies-guide-to-valuing-a-cdo-reference-barnett-harts-thesis?source=email

DAMODORAN ON BUSINESS VALUATION ISSUES

http://pages.stern.nyu.edu/~adamodar/

Damodoran has published various Research/Papers: Recently added papers include

  1. What is the riskfree rate?
  2. The Equity Risk Premium: Determinants, Estimation and Implications: A Post-Crisis Update (October 2009)
  3. Valuing companies across the life cycle from young companies to distressed firms.
  4. Valuing companies in segments from financial services to commodity & cyclical to multinational firms.
  5. Claims on Equity: Valuing differential voting rights, liquidity and cash flow claims
  6. Measuring Returns: ROE, ROIC and ROC
  7. A Survey Paper on Valuation
  8. To Hedge or not to hedge: That is the question
  9. Value at Risk: Where is the beef?
  10. Strategic Risk Taking: A marriage of corporate finance and corporate strategy
  11. Simulations, Decision Trees and Scenario Analysis in Valuation

FAIR MARKET VALUE VERSUS GAAP FAIR VALUE

http://www.fairvalueforum.org/Articles/FVF%20Topic%20of%20Discussion%20DLOM.pdf

Under IRC 409A, the key standard is fair market value. Published in 2004, the AICPA Practice Aid “Valuation of Privately-Held-Company Equity Securities Issued as Compensation” (“Practice Aid”) states that for purposes of determining the value of common stock used for compensation the definition of “fair value” would be consistent with that of the definition of “fair market value” from Internal Revenue Ruling 59-60.  While within the valuation community, the default assumption is that these two standards of value arrive at the same conclusion, many professionals have seen
situations where these two values are different.

ABOUT VALUATION

Business Valuation, which involves the process of establishing a value for non-publicly traded business entities involved in estate and trust administration, marital dissolution proceedings, business litigation, ESOP administration, and dissenting shareholder litigation.

Valuation of Damages and Lost Profits, which involves the process of measuring income lost or incremental costs incurred as a result of personal injury and wrongful death, wrongful termination, breach of contract, and commercial accidents.

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