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Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests + Website, 2nd Edition by Robert T. Slee

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CHAPTER 5

Asset Subworld of Market Value

Market value is the highest purchase price available in the marketplace for selected assets or stock of the company. Every company has at least three market values at any given moment corresponding to the most likely selling price based on the most likely investor type. These subworlds are asset, financial, and synergy. This is another example of why market value, like all business valuation, is a range concept.

The asset subworld reflects what the company is worth if the selling price is based on net asset value. In this world, the most likely buyer does not base the purchase of assets on the company's earnings stream. The buyer in this subworld does not give credit to the seller for goodwill, the intangible asset that arises as a result of name, reputation, customer patronage, and similar factors, beyond the possible write-up of the assets.

An owner's motive to derive the highest value obtainable leads to appraisals in the world of market value. Commercial real estate appraisers often evaluate the “highest and best use of a property.” Adapting this concept, the world of market value determines the highest and best value for a business. However, the asset subworld shows that the highest value for a business may be found by determining the market value of assets less liabilities.

Financial intermediaries and asset appraisers are the authorities governing the asset subworld, rather than Internal Revenue Service regulations, court precedents, ...

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