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the most accurate gauge of the value the market places on a good. Until such an exchange oc-
curs, the market value of an item is necessarily speculative."

Thus three approaches — income, market, and assets (replacement cost) — generally used to
value business may be used to determine the solvency or insolvency of the debtor.

Furthermore, on pages 132 and 133 of Business Valuation and Bankruptcy, it states

Depending on the information available, the expert can use the asset approach, the income ap-
proach, or the market approach, to arrive at an opinion of value. For example, in MFS/Sun Life
Trust-High Yield Series v. Van Dusen Airport Servs. Co., 910 F. Supp. 913, 939, 942 (S.D.N.Y.
1995), in determining that an LBO fn 41 was not a fraudulent transfer because the debtor was sol-
vent after the transaction, the court relied on the discounted cash flow and market methods of
valuation and reasoned as follows:

Both the plaintiffs and the defendants presented evidence of the value of VDAS based on
discounted cash flow. This is an appropriate method of determining the going concern
value of a company that is not in imminent danger of collapse. See Moody, 971 F.2d at
1067; Vadnais Lumber, 100 B.R. at 131-32 ("The proper standard of valuation to be ap-
plied in determination of solvency in a bankruptcy proceeding is the value of the business
as a going concern, not the liquidation value of its assets less its liabilities."). The wide
variance in valuations is attributable to differences in initial earnings figures, in the
growth rate applied to those figures, and in the discount rate selected.

A number of the witnesses also performed valuations using comparable companies or
comparable transactions. Because there is legitimate disagreement over how "compara-
ble" one business is to another, these analyses incorporate additional variables. Accord-
ingly, they are best utilized to corroborate valuations obtained by other methods.

A Practical Guide to Bankruptcy Valuation by Shaked and Reilly states fn 42

The three approaches most often used to value the debtor business enterprise are the asset-based
approach, the market approach and the income approach. The business enterprise is often defined
as the total of long-term, interest-bearing debt and owners’ equity. The term "business enter-
prise" is a virtual synonym for the terms "total invested capital" (TIC) or "market value of in-
vested capital" (MVIC). To value the owners’ equity, the analyst subtracts the value of long-term
(including current maturities), interest-bearing debt from the value of TIC.

Common asset-based approach business valuation methods include the asset accumulation meth-
od and the adjusted net asset value method (ANAV). . . .

fn 41 A leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money (bonds or loans)
to meet the cost of acquisition.

fn 42 Dr. Israel Shaked and Robert F. Reilly, "Fraudulent Transfers and the Balance Sheet Test," chap. 3B in A Practical Guide to
Bankruptcy Valuation (Alexandria, VA: American Bankruptcy Institute, 2013), 90–91.

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