Alexander v. Alexander, 2013 Mich. App. LEXIS 1490 (Sept. 10, 2013) (slip op.)
In a divorce case, the spouses retained experts to calculate the value of a small, agriculture-based business that the husband owned and operated during the marriage. The appraisers used a capitalization of net income approach and applied vastly different capitalization rates. Per the wife's expert, an 18% cap rate was appropriate, whereas the husband's expert applied a 26.6% rate. There were disagreements over the stability of the industry and the risk to the company. The court opted to adopt a third-party appraisal that employed a 13.1% cap rate.
The discrepancies have triggered an animated discussion within BVR's LinkedIn group. Appraiser Scott Hakala (CBIZ Valuation Group LLC) sees the case as evidence "why the IPCPL model is so useful in narrowing the range of debate." Valuator Ed Davis says the case is not so much about risk premiums but primarily about how one views the industry. This is not surprising, he believes, because the industry argument "is certainly easier to understand if you're a judge (or anyone) listening to the arguments vs. trying to figure out the equity risk jargon."