Page 106 - M & A Disputes

Market capitalization of invested capital. The market capitalization of equity plus the market val-
ue of the debt component of invested capital. (Practitioner — Appendix B)

Market (market-based) approach. A general way of determining a value indication of a business,
business ownership interest, security, or intangible asset by using one or more methods that
compare the subject to similar businesses, business ownership interests, securities, or intangible
assets that have been sold. (Practitioner — Appendix B)

Market multiple. The market value of a company’s stock or invested capital divided by a company
measure (such as economic benefits, number of customers). (Practitioner — Appendix B)

Market value of invested capital (MVIC). A generally accepted financial term meaning the sum of
the Market value of the Equity Capital (common stock plus preferred stock) in a business plus
the Market Value of the Interest Bearing or Debt Capital (long term debt plus notes payable) in a
business entity. fn 10

Merger and acquisition method. A method within the market approach whereby pricing multiples
are derived from transactions of significant interests in companies engaged in the same or similar
lines of business. (Practitioner — Appendix B)

Mid-year discounting. A convention used in the discounted future earnings method that reflects
economic benefits being generated at midyear, approximating the effect of economic benefits be-
ing generated evenly throughout the year. (Practitioner — Appendix B)

Minority discount. A discount for lack of control applicable to a minority interest. (Practitioner —
Appendix B)

Minority interest. An ownership interest less than 50% of the voting interest in a business enter-
prise. (Practitioner — Appendix B)

Monte Carlo simulations. A methodology for pricing stock options involving a computer prepared
spreadsheet model to analyze the effect of varying inputs based upon the outputs of the model
system. The Monte Carlo simulation randomly generates values for uncertain variables over and
over to simulate a real-life model. fn 11

Multiperiod excess earnings method. A methodology under the income approach to valuation used
to calculate the value of certain intangible assets, including customer relationships. The key driv-
ers in this method are revenues and the cash flow stream of the entity.

Multiple. The inverse of the capitalization rate. (Practitioner — Appendix B)

Net book value. With respect to a business enterprise, the difference between total assets (net of ac-
cumulated depreciation, depletion, and amortization) and total liabilities as they appear on the
balance sheet (synonymous with shareholder’s equity). With respect to a specific asset, the capi-

fn 10 See footnote 4.

fn 11 Razgaitis, Richard. Dealmaking Using Real Option and Monte Carlo Anaylsis. Hoboken, NJ: Wiley, 2003.

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