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This eleventh post in the Deja Vu series involving restricted stock studies addresses an issue that is rarely mentioned in the context of the studies – of the impact of dividends on restricted stock discounts (RSDs). Of these 244 transactions, only 24 involved companies that paid dividends, or less than 10% of the transactions.
Business appraisers routinely use the discounted cash flow model to value entire businesses. The value of all remaining cash flows after the finite forecast period is captured in the terminalvalue, which is, effectively, a capitalization of earnings or cash flows at the end of the forecast period.
” And the answer holds regardless of any certifications appraisers might hold. Procedural Guidelines (PG) are designed to provide more detailed guidance for consideration by business appraisers than found in the base standards themselves. The value of the underlying enterprise or asset, if applicable.
In Mercer’s Musings #2, we discussed the old and cold data on restricted stock transactions that have been misused by appraisers for decades. This conclusion applies to all appraisals, including those prepared for the Internal Revenue Service. In other words, value is a function of expected cash flow, growth, and risk.
Whether there was a formal appraisal or not at the pre-IPO transaction date, there was an implied marketable minority/financial control (base) value for that entity at that date. per share value was likely unobserved unless the transaction was based on an appraisal. based on the marketable minority value of $18 million.
Fair Market Value Defined Fair market value occurs at the intersection of hypothetical negotiations between hypothetical willing, knowledgeable and able buyers and sellers. Therefore, in every fair market value determination prepared by business appraisers, it is critical that both buyers and sellers are present for the negotiation.
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