Page 10 - Bankruptcy and Reorganization Services
P. 10
Subject Company Transaction Method ............................................................................................................. 46
Common Errors in the Market Approach ......................................................................................................... 47
Income Approach .............................................................................................................................................. 48
Income Approach Methods ........................................................................................................................... 48
Common Errors in the Income Approach ..................................................................................................... 58
Asset (Asset-Based) Approach ......................................................................................................................... 59
Valuing Individual Assets ............................................................................................................................. 61
Valuing Individual Liabilities ....................................................................................................................... 64
Common Errors in the Asset Approach ........................................................................................................ 67
Chapter 10 — Valuation Synthesis and Conclusions ...................................................................................... 69
Reviewing the Level, Standard, and Premise of Value .................................................................................... 69
Weighting Each Indication of Value ................................................................................................................. 69
Income Approach .......................................................................................................................................... 70
Market Approach .......................................................................................................................................... 71
Asset Approach ............................................................................................................................................. 72
Reaching a Conclusion ..................................................................................................................................... 72
Chapter 11 — Cost of Capital ............................................................................................................................ 73
Overview ........................................................................................................................................................... 73
Cost of Equity ................................................................................................................................................... 73
CAPM ........................................................................................................................................................... 73
Company-Specific Risk ................................................................................................................................ 74
Fama-French Three-Factor Model ................................................................................................................ 77
Duff & Phelps Risk Premium Report ............................................................................................................... 77
Cost of Debt ...................................................................................................................................................... 78
Convertible Debt, Preferred Stock, Convertible Preferred Stock ..................................................................... 78
Weighted Average Cost of Capital ................................................................................................................... 79
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