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Arbitrage pricing theory. A multivariate modifier for estimating the cost of equity capital, which
incorporates several systematic risk factors. (Practitioner — Appendix B)

Asset (asset-based) approach. A general way of determining a value indication of a business, busi-
ness ownership interest, or security using one or more methods based on the value of the assets
net of liabilities. (Practitioner — Appendix B)

Assumptions and limiting conditions. Parameters and boundaries under which a valuation is per-
formed, as agreed upon by the valuation analyst and the client or as acknowledged or understood
by the valuation analyst and the client as being due to existing circumstances. An example is the
acceptance, without further verification, by the valuation analyst from the client of the client’s
financial statements and related information. (Practitioner — Appendix C)

Binomial models. Stock Option pricing models based on the assumption that stock prices can move
only to one of two values over a short period of time. fn 4

Black-Scholes option model. In 1973, Fisher Black and Myron Scholes published a landmark paper
entitled "The Pricing of Options and Corporate Liabilities," fn 5 which showed the derivation of
the Black-Scholes model for the valuation of marketable options on non-dividend paying stocks.
The model is based on two critical assumptions: No arbitrage (or perfect hedge) and non-perfect
markets. fn 6

Blockage discount. An amount or percentage deducted from the current market price of a publicly
traded stock to reflect the decrease in the per share value of a block of stock that is of a size that
could not be sold in a reasonable period of time given normal trading volume. (Practitioner —
Appendix B)

Bona fide purchaser. One who buys something for value without notice of another’s claim to the
property and without actual or constructive notice of any defects in or infirmities, claims, or eq-
uities against the seller’s title; one who has in good faith paid valuable consideration for property
without notice of prior adverse claims. (BLD)

Book value. See net book value. (Practitioner — Appendix B)

Breach of contract. Violation of a contractual obligation by failing to perform one’s own promise,
by repudiating it, or by interfering with another party’s performance. (BLD)

Business. See business enterprise. (Practitioner — Appendix B)

Business enterprise. A commercial, industrial, service, or investment entity (or a combination
thereof) pursuing an economic activity. (Practitioner — Appendix B)

fn 4 Pratt, Shannon P. Valuing a Business: The Analysis and Appraisal of Closely Held Companies, 5th ed. With Alina V. Niculita.
New York: McGraw-Hill, 2008.
fn 5 Black, Fischer and Myron Scholes. "The Pricing of Options and Corporate Liabilities." The Journal of Political Economy (May
1973): 637–59.

fn 6 See footnote 4.

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