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BV News and Trends October 2021

A monthly roundup of key developments of interest to business valuation experts.

Premier ASA Complex Securities Conference Breaks Attendance Record

Summaries and takeaways from the American Society of Appraisers’ first ASA Complex Securities Virtual Conference.

The most popular option model for estimating DLOM

Almost half (48%) of respondents to a recent survey say they use option pricing models to estimate a discount for lack of marketability (DLOM), and the Finnerty model is the one most cited, according to BVR’s DLOM survey.

A few recent papers of note

“Forecasting: Theory and Practice” is a recently updated encyclopedic presentation of forecasting methods in theory and practice.

Debut of complex securities conference is tomorrow, May 20

Want to move from standard business appraisals to more difficult-to-value assets? Attend the Complex Securities Virtual Conference on May 20, presented by the American Society of Appraisers (ASA).

Navigation Through the Maze in Complex Debt Instruments Valuation

Global convertible security issuance has surged in the wake of the COVID-19 outbreak as companies rush to raise cash to see them through the economic impact. This has resulted in an increase in demand for fair valuation requirement for convertible instruments. However, determination of fair value of convertible instruments can be a challenging task. Multiple provisions and attributes of the underlying security need to be considered and modeled. Join Mark Zyla, Rajesh C. Khairajani, and ...

NICE Value! How to Deploy the Non-Marketable Investment Company Evaluation Method

When it comes to valuing minority interests in family investment entities such as family limited partnerships, business valuation professionals have not often used the income approach. However, in three recent Tax Court cases, the income approach was prominently featured, and, in one case, it was clearly the deciding factor in the court’s decision. Join William Frazier to learn about the nonmarketable investment company evaluation (NICE) method. Learn its origins, what it doesn’t replace, and how ...

School of Probability: The Use of Monte Carlo in Valuation

The one thing we know about valuations is that the future is unpredictable. How we deal with that uncertainty is critical to developing credible valuations. Join Oksana Westerbeke and Keith Konen to learn how Monte Carlo simulations can be used to deal with the uncertainty, allowing you to generate insights for your client and build credible valuations.

Case Studies in Contingent Consideration

A significant component of the transaction price in an M&A or buyout transaction often consists of proceeds that are “contingent” upon the target company’s achievement of certain performance targets after the closing has taken place. From the perspective of the seller, “contingent consideration” represents the right to receive additional assets or equity interests from the buyer (earnout), or the obligation to return part of the proceeds from the transactions (clawback) if specified future events occur ...

What Black-Scholes-Merton modelling inputs should be considered when valuing early-stage enterprises for financial reporting

Option price models help analysts project values, particularly when assets have little history or highly volatile future outcomes.

Deriving the Black Scholes Option Pricing Equation

In the valuation profession, the Black-Scholes option pricing model (BSOPM) is one of the most often used, yet least understood, valuation models. In this session, Gary Schurman will derive the BSOPM equation in an intuitive, albeit unconventional, way. Gain confidence in finding and eliminating arbitrage, understanding risk-neutral probabilities, and working in continuous or discrete time. Attend for advanced and technical training on one of valuation’s most popular models.

BVU News and Trends February 2019

A monthly roundup of key developments of interest to business valuation experts.

Thinking of doing complex financial valuations?

Want to move from standard business appraisals to valuations of derivatives, guarantees, exotics, complex securities, and the like?

Size-adjusting Volatility

Since the valuation of corporate securities with option-like features issued by the private companies requires an estimate of volatility based upon comparable public companies and the comparable companies are often larger, the use of unadjusted volatilities may understate the volatility of the subject private company. This article provides an up-to-date research review on the need for size-adjusting volatility. We also present a simple methodology to size adjust comparable companies that is easily updated with data ...

Determining the Cost of Blockage by the Market-Derived Blockage Discount Model

Using option models to determine blockage discounts has been a common practice for over 20 years. As with any technique, periodic updating and improvement is to be expected. We hope this article contributes to this end. The Market-Derived Blockage Discount Model presents a mathematical means for determining the appropriate selling period in a blockage “dribble out” analysis. If we sell too much at one time, the price impact is too great. If we create too ...

Where can I get option pricing modeling software?

Reference list for learning about real option modeling

Menard v. Commissioner (I)

The U.S. Tax Court determined that the amount paid by Menard, Inc. to its controlling shareholder as compensation and deducted on its 1998 Federal tax return under sec. 162 was unreasonable. In reaching this conclusion, it valued the long-term incentive c ...

Court Accepts Taxpayer's Expert Value Despite Taxpayer Protests

The issues in this estate tax matter were as follows: the fair market value of Frank DiSanto's (Frank) 186,177 shares (53.5%) of stock in Morganton Dyeing & Finishing Corp. (MD&F) on his date of death; and the fair market value of the MD&F stock Grace DiSanto (Grace) was entitled to inherit from Frank's estate (a minority interest) on his date of death.

Petitioners' expert accepted despite their claim of lower value

The Experts: Clifford Braly III (for taxpayers on returns) Deloitte & Touche Management Planning, Inc. (for petitioners at trial) William H. Frazier, ASA (for petitioners ...

Estate of DiSanto v. Commissioner

At issue is the fair market value of a block of 186,177 shares of MD&F stock owned by the decendent.

Petitioners' Expert Accepted Despite Their Claim of Lower Value: Marital Deduction Based on Stock Actually Inherited After Disclaimer

The issues in the estate tax matter were: the fair market value of Frank DiSanto's (Frank) 186,177 shares (53.5%) of stock in Morganton Dyeing & Finishing Corp. (MD&F) on the date of death; the fair market value of the MD&F stock Grace DiSanto (Grace) was entitled to inherit from Frank's estate (a minority interest) on her date of death; whether Grace had expectancy interest only in the stock she was entitled to inherit; and whether Frank's estate was entitled to a marital deduction based on the value of the stock he willed to Grace or based on the value of the stock she was entitled to receive after executing a disclaimer of part of her interest in the stock.

A Post-Valuation Date Redemption and a Marital Deduction

The Tax Court determined that the fair market value of stock in a fabric dying corporation.

Options, if vested, are marital asset

On appeal is the issue of whether and to what extent an interest in stock options and retention stock benefit plans provided by spouse's employer constitutes marital property.

Davidson v. Davidson

At issue is whether and to what extent an interest in stock option and retention stock benefit plans provided by a spouse's employer constitutes marital property.

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