Download Private Company Valuation: How Credit Risk Reshaped Equity by G. Oricchio PDF

By G. Oricchio

The new drawback in monetary markets has visible a steady erosion of secure asset sessions. In fairness markets the credits possibility has reached a serious point in valuation. Here a new expense of fairness approach for personal businesses is gifted according to the pricing of junior subordinated notes. worldwide enterprise instances are illustrated to aid this.

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Additional info for Private Company Valuation: How Credit Risk Reshaped Equity Markets and Corporate Finance Valuation Tools

Sample text

8 Intangible assets valuation In this section a number of intangible assets valuation methodologies for private companies are considered: human capital, commercial licences, order book, brand, customer portfolio and customer data base, mineral exploration and research concessions. 1 Human capital There are many ways of estimating the value of human capital as an intangible asset. A distinction is often made between qualitative methods and quantitative methods. Qualitative methods are aimed at identifying those variables and relationships on which any increase or Private Companies’ Equity Valuation Methods 29 decrease in the value of human capital depends.

The equity fair value is estimated as the sum of the adjusted NAV and the value of intangible assets not Private Companies’ Equity Valuation Methods 27 accounted in the balance sheet, as shown in the formula: W = K + IA where W K IA is the company’s equity fair value; is the adjusted NAV; is the value of non-accounted intangible assets. This formula implicitly supposes the company is in a position to reasonably remunerate the adjusted NAV inclusive of intangible assets, or, put another way: E ≥ ke(K + IA) where E is the expected net earnings; ke is the cost of equity; K is the adjusted NAV; IA is the value of non-accounted intangible assets.

2). Let us suppose we are using the WACC technique to estimate the equity fair value of a company with the following data. 2 Cash flow configurations 60 (20) 40 (20) 20 – + 20 – – 20 60 – – – 60 60 – – (30) 30 60 – – (20) 40 Expected, constant, normal, average debt cash flow(to keep things simple relating to interest expenses only) = 20,000 euro; Tax paid in the financial year = 20,000 euro; Expected, constant, normal, average levered cash flow = 20,000 euro; ke = 12%; iD = 10%. Let us also suppose that this data derives from the following situation (per 1,000 euro): Suppose that the NPV of the interest expenses at the time of the estimate is 200,000 euro, that there is no liquidity, that the tax rate is 50%, and that the equity fair value is calculated in accordance with the three methods shown above.

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