Valuing Contingent Consideration: Discount Rate Selection

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American Society of Appraisers Business Valuation Review™
Fall 2011 Volume 30, Issue 3 pp. 100-103
Daniel Guderjohn, ASA


Earnouts have become an increasingly prominent component of transaction consideration. At the same time, fair value accounting requirements have heightened the need to value them, as well as other forms of contingent consideration. While several models have been developed to value contingent consideration, there has been less debate about how to set important model parameters, such as the discount rate. This article provides one simple method of selecting a discount rate for the valuation of earnouts and other contingent consideration.
Valuing Contingent Consideration: Discount Rate Selection
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