Will Frazier, ASA of Howard Frazier Barker Elliot, Inc. spoke about the Non-marketable Investment Company Evaluation Method (NICE) at the ASA/AICPA National Business Valuation Conference in Las Vegas this week. NICE is used when determining the fair market value of equity interests in closely held investment entities like Family Limited Partnerships (FLPs), that hold a portfolio of assets in long term investments. “All the action in the Tax Court is with Discount for Lack of Marketability (DLOM). NICE bypasses the DLOM “action” by focusing on the rates of return of the various assets held,” Frazier told a packed house in Las Vegas.
NICE is based on Modern Portfolio Theory where there are observable sources of information, risks and rewards are investigated, assets are allocated and the expected holding periods are considered. NICE “doesn’t drop you in the ocean and hope you can swim—it gives you a lifeboat and a compass.” NICE is a tool that helps the appraiser find the value at which the rate of return satisfies the objectives of both the seller and buyer – thereby determining fair market value. Frazier’s goal is to have NICE available as a commercially available web-based tool by the end of next spring, at the latest. The BVWire™ will keep readers in the know about its availability.
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