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Equity Asset Valuation, Second Edition by Jerald E. Pinto, CFA, Elaine Henry, CFA, John D. Stowe, CFA, Thomas R. Robinson, CFA

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CHAPTER 7 180
PRIVATE COMPANY VALUATION

LEARNING OUTCOMES

 
After completing this chapter, you will be able to do the following:
• Compare and contrast public and private company valuation.
• Identify and explain the reasons for valuing the total capital and/or equity capital of private businesses.
• Explain the role of definitions (standards) of value, explain the different definitions of value, and illustrate how different definitions can lead to different estimates of value.
• Discuss the three major approaches to private company valuation.
• Illustrate and explain the adjustments required to estimate the normalized earnings and/or cash flow for a private company, from the perspective of either a strategic or nonstrategic (financial) buyer and explain cash flow estimation issues.
• Explain and illustrate methods under the income approach to private company valuation including the free cash flow method, capitalized cash flow method, and excess earnings method.
• Identify and explain specific elements of discount rate estimation that are relevant in valuing the total capital or equity capital of a private business.
• Compare and contrast models used in a private company equity required rate of return estimation (including the CAPM, the expanded CAPM, and the build-up method) and discuss the issues related to using each.
• Discuss and illustrate market approaches to private company valuation, including the guideline public company method, the guideline transactions method, and the prior ...

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