New application for Butler/Pinkerton Model: 123R

BVWireIssue #65-3
February 27, 2008

“While working on a recent engagement to value employee stock options to comply with FAS 123R reporting requirements, we uncovered yet another use for the Total Cost of Equity and Public Company-Specific Risk Calculator (BPM),” write co-developers Pete Butler and Keith Pinkerton in their article in the current (March 2008) Business Valuation Update™.  This article is also available at BVMarketData as a free download. 

FAS 123R permits nonpublic entities to “exercise judgment” in estimating expected volatilities—including basing these estimates on the average volatilities of comparable public entities.  But by using the BPM, analysts can avoid this subjective exercise.  “You can look at your specific private company and determine its implicit volatility using its total cost of equity (TCOE).”

Listen to the podcast: Butler and Pinkerton will discuss this new application of the BPM and more in the next BVR teleconference on March 6, 2008.  Attendees will learn financial support for the model, how to select inputs and read outputs; and they’ll be able to pose specific questions to the developers.  An extra bonus: Attendees will receive five days of free access to the calculator, and current BPM subscribers can register for the conference at a discount.  To learn more, listen to the authors’ “live” podcast at BVResources.  To attend the conference, click here.

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