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Valuation Considerations in High Inflationary Environments

With inflation at its highest level since the Great Inflation, valuation analysts will have to consider macroeconomic factors that have not been present in the U.S. economy in over 20 years.

Accounting for Inflation in the Income Statement Forecast

An example from an actual engagement that demonstrates the manner in which inflation can impact a valuation.

Hitchner v. Damodaran on Inputs to the Cost of Capital

Jim Hitchner (Valuation Products and Services) responds to some severe criticisms Aswath Damodaran (New York University Stern School of Business) made during a BVR webinar about certain inputs to the cost of capital. Hitchner also offers some best practices and a handy tool to use as a reasonableness check on your cost of capital estimate.

BV News and Trends September 2022

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

Let's Get Real About the Dividend Growth Model

The dividend growth model, sometimes called the dividend discount model or discounted cash flow model, is a commonly used tool for estimating the cost of equity capital, particularly in the context of utility rate setting and unitary appraisal. Although the assumption of constant growth in perpetuity is almost never realistic, the constant growth version of the model is still commonly used in practice. However, given modern computing technology, there is no reason not to use ...

Damodaran on How Inflation Plays Out in Company Valuations

Professor Aswath Damodaran (New York University Stern School of Business) presents a simple framework for assessing the impacts of inflation on the value of a private company. He also made some explosive remarks about certain inputs to the cost of capital.

BV News and Trends August 2022

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

Hitchner responds to Damodaran’s criticisms of cost of capital inputs

BVWire will attend a webinar tomorrow (July 21) by Jim Hitchner (Valuation Products and Services) who will respond to some severe criticisms Aswath Damodaran (New York University Stern School of Business) made during a recent BVR webinar.

Cellular Telephone: An Interesting Decision for Valuation Practitioners

A recent Delaware decision in a breach of fiduciary duty case awarded more than triple the amount originally paid to partners who were squeezed out of their collective 1.881% interest in a partnership. Several aspects of this decision are of particular interest to valuation practitioners, especially those whose practice includes litigation services. The case is: In Re Cellular Tel. P’ship Litig.; 2022 Del. Ch. LEXIS 56 (Cellular).

Delaware Chancery Case on Shareholder Dissent Likely to Raise Eyebrows

A practitioner’s commentary on the Cellular case focuses on the tax-affecting issues in the case.

Damodaran tosses some dynamite during BVR webinar

Historical equity risk premium? “I don’t like a backward-looking and stagnant premium.”

Bankruptcy court KOs transfers from ‘personal piggy bank’

In a bankruptcy case in Illinois, the three tests for insolvency came into play when a dispute arose as to whether transfers the debtor company made totaling $1.72 million were fraudulent.

Long-term inflation estimates rise, per Kroll infographic

Long-term inflation expectations for the U.S. and Germany, a key starting point to evaluate the long-term growth rate used in the terminal year of DCF analyses, are significantly higher when compared to June 2020, at the height of the COVID-19 crisis, according to a newly updated infographic from Kroll.

In Search of a Steady State: Inflation, Interest Rates and Value, The (inflation) Genie Escapes the Bottle!

In this very special complimentary program with BVR, renowned financial guru Aswath Damodaran looks at where inflation expectations stand and where inflation might end up – from the potentially catastrophic to the (mostly) benign. Inflation is the culprit behind markets approaching bipolar territory with their big ups and downs, and it remains a highly unpredictable macroeconomic factor.

Valuation amid inflation: a free interactive webinar with Aswath Damodaran

BVR has a very special event next week—a free one-hour webinar on June 14 titled In Search of a Steady State: Inflation, Interest Rates, and Value—The (Inflation) Genie Escapes the Bottle!

Delaware Chancery rejects partnership valuation in a freeze-out

In a coordinated action involving 13 partnerships that were involved in freeze-out transactions by AT&T of minority shareholders, the court found that AT&T breached its fiduciary duties and effectuated the freeze-out through an unfair process and by paying an unfair price.

Stone v. Citizens Equity First Credit Union (In re Int’l Supply Co.)

The trustee of International Supply Company (ISCO) asked for avoidance and recovery of prepetition fraudulent transfers made to Citizens Equity First Credit Union. ISCO was insolvent when the transfers were made, and the transfers were for the benefit of the controlling shareholder. The court disallowed two of the fraudulent transfers. Some complaint counts against certain individuals were dismissed without prejudice.

Bankruptcy Court Sides With Trustee—Disallows (Fraudulent) Transfers

The trustee of International Supply Company (ISCO) asked for avoidance and recovery of prepetition fraudulent transfers made to Citizens Equity First Credit Union. ISCO was insolvent when the transfers were made, and the transfers were for the benefit of the controlling shareholder. The court disallowed two of the fraudulent transfers. Some complaint counts against certain individuals were dismissed without prejudice.

In Re Cellular Tel. P’ship Litig.

In this coordinated action involving 13 partnerships that were involved in freeze-out transactions by AT&T of minority shareholders, AT&T breached its fiduciary duties and effectuated the freeze-out through an unfair process and by paying an unfair price. The freeze-out was subject to the entire fairness standard of review. AT&T bore the burden of proving that the freeze-out was entirely fair to the minority partners. AT&T failed in that proof and thereby sought to capture future value for itself. AT&T did not employ any procedures that insured fairness to the minority partners. The lead partner of the valuation firm had a long-standing relationship with AT&T, and internal AT&T personnel influenced the outcome of the valuation. The court determined the fair value of the interest as a remedy to the situation.

Delaware Chancery Court Rejects Partnership Valuation in a Freeze-Out as Unfair to Minority Partners

In this coordinated action involving 13 partnerships that were involved in freeze-out transactions by AT&T of minority shareholders, AT&T breached its fiduciary duties and effectuated the freeze-out through an unfair process and by paying an unfair price. The freeze-out was subject to the entire fairness standard of review. AT&T bore the burden of proving that the freeze-out was entirely fair to the minority partners. AT&T failed in that proof and thereby sought to capture future value for itself. AT&T did not employ any procedures that insured fairness to the minority partners. The lead partner of the valuation firm had a long-standing relationship with AT&T, and internal AT&T personnel influenced the outcome of the valuation. The court determined the fair value of the interest as a remedy to the situation.

Typical Way to Estimate Long-Term Growth Is ‘Flat Wrong,’ Says Grabowski

New research calls into question the common practice of using long-term real GDP growth plus expected inflation in terminal values.

BV News and Trends December 2021

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

HMH Enters. v. TAG Enters.

The plaintiffs contended that the trial court erred in granting two defendants motions in limine to exclude evidence of the plaintiffs’ damages. The appellate court affirmed the decisions of the trial court.

Court Affirms Exclusion of Testimony From Witness as Being Based on Inadmissible Hearsay Evidence

The plaintiffs contended that the trial court erred in granting two defendants motions in limine to exclude evidence of the plaintiffs’ damages. The appellate court affirmed the decisions of the trial court.

Justifying hockey-stick projections

Valuation experts frequently receive from management what may appear to be an unrealistic forecast that starts off modestly but shoots up in future years as if by magic.

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