Some interesting points and observations have been posted on BVR’s LinkedIn group (now over 4,700 members) in the discussion on the valuation impact of the new tax law. We urge you to take a look at the thread and join in the conversation. Here are a few of the stimulating comments:
- What is the effect on “g”? If lower corporate tax rates mean more cash is retained within the company and reinvested at the required rate of return, one would expect long-term growth to increase as well.
- The reduction in corporate tax rates might change the market-based multiples for pretax multiples such as EBIT and EBITDA.
- The S corp “premium” may be negative in some cases.
- Will there be more reasonable compensation challenges under Sec. 199A?
- One commenter mentioned that the higher threshold for estate tax would cause appraisals for this purpose to “almost entirely dry up.” But another commenter pointed out that a valuation to establish date-of-death basis would still be required.
- The most important part of the new law is that the valuation analyst will need to become very involved in the analysis of historical data and use professional judgment to determine the impact of the new tax law on current valuations.
There is a lot to think about, and the new tax law affects many aspects of valuation, so stay tuned for ongoing coverage here and in Business Valuation Update.
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