Microsoft Word peachtree case study
Value = Income ÷ Capitalization Rate
Download 0.84 Mb. View original pdf
|
| Value = Income ÷ Capitalization Rate In order to implement this method appropriately, and for the result to be inline with the actual mathematics required for the above formula to be true, the following must be present in the subject company • Predictable and stable income stream and • Constant long term sustainable growth in perpetuity 17 This is the definition of the Gordon Growth Model which is widely used by valuation practitioners and discussed in detail in a variety of texts, one often cited being Valuing a Business, The Analysis and Appraisal of Closely Held Page 96 of 141 As discussed in Section 4.7 Company Financial Review the normalized income has been relatively consistent as was shown in Table 15 Normalization of Income. The long‐term sustainable growth rate for the industry and in particular for this subject Company has been determined to be 3.0% based on the analysis performed and referenced in Section 3.0 Economic and Industry Review. Therefore, the subject Company meets the criteria for using the Single Period Capitalization Method. The result of using this method will bean estimate of value for the subject Company on a control, as if freely traded (or marketable) basis, meaning that a discount for lack of marketability will need to be applied. The reason for requiring this discount is because the capitalization rate to be used will be developed from data that is based on aggregate public company performance i.e., the source of data is based on companies that are freely traded, in other words, marketable. The discount for lack of marketability will be addressed in Section 5.5.3 Discount for Lack of Marketability – Subject Interest. Download 0.84 Mb. Share with your friends:
|