Band 2, Heft 1

The Excess Earnings Method requires the estimation of two capitalization rates, and the difficulty of estimating these has been suggested as a deterrent to greater use in business valuations. This paper presents a mathematically-derived set of formulas which allow the valuator to derive capitalization rates from publicly traded comparables. The paper provides implementation guidance and surveys empirical research which supports the use of the Excess Earnings Model for practical valuation work.

This article attempts to demonstrate that Internet venture valuations are not subject to different valuation standards and rules, even though one needs to expand on the traditional valuation approach to make it applicable to internet valuations. It is shown that traditional valuation methods (such as the discounted cash flows approach) understate value twice; first, when risk changes over time and second, when flexibility matters to an investment decision. As a result, when analysts use traditional valuation approaches to value Internet companies, they may arrive at estimates of very low P/E ratios vis-à-vis observed multiples. The observed high P/E ratios may make most investors turn away from such investments, although the high P/E ratios may be justified based on the option to great riches in the future and the lower risk associated with Internet ventures’ cash flows in the future given successful progression through early phases.

Past discussions about economic efficiency and personal injury torts have focused on the relationship between the optimal amount of care a potential injurer should take for economic efficiency. Typically this discussion has assumed that the economic damages are strictly monetary without any full consideration of how these damages should be measured. This paper constructs a general model which incorporates as an unknown the amount of monetary damages that an injurer should pay in the interest of economic efficiency. The optimal amount of damages need to be known to serve as signal for the amount of care a potential injurer should take. The model shows that the optimal damage award should be at that point where that marginal utility of money paid out by the injurer equals the marginal utility of the money received by the victim under his utility function after the accident and not considering any non-monetary damages.

This case provides information used to evaluate a small company, with two owners (50/50) who have different ideas about the future of the company, Multicines Aalto, S.A. The case summarizes the opinions of the partners during the long hours of negotiation for acceptable business value for both of them. In particular, they were worried about what consideration to give to the unique situation of the film exhibition industry in Spain, and the alternatives available to the company and to each partner, not to mention how to raise the money to pay for the operation, providing it was a good idea...

This study investigates whether the valuation approaches for closely held companies preferred by courts vary by industry type. Our difference of means tests find that income valuation approaches are preferred by courts over either asset or market approaches for cases involving the valuation of manufacturing companies, while market valuation approaches are preferred for cases involving the valuation of holding companies. We do not find any significant differences between companies categorized as tangible and intangible. Our multivariate tests further indicate that income approaches are approximately five times more likely to be preferred for manufacturing companies than other types of companies.