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denominator in its control premium calculation. However, the CAR for
any period other than ( 1, 0) is not mathematically equivalent to a con-
trol premium.
DLOC (discount for lack of control) an amount or percentage deducted
from a pro rata share of the value of 100% of an equity interest in a
business, to re¬‚ect the absence of some or all of the powers of control.2
DLOM (discount for lack of marketability) an amount or percentage
deducted from an equity interest to re¬‚ect lack of marketability.3


1. Business Valuation Standards, De¬nitions, American Society of Appraisers.
2. Ibid.
3. Ibid.




475




Copyright 2001 The McGraw-Hill Companies, Inc. Click Here for Terms of Use.
economic components model Abrams™ model for calculating DLOM
based on the interaction of discounts from four economic components.
This model consists of four components: the measure of the economic
impact of the delay-to-sale, monopsony power to buyers, and incremental
transactions costs to both buyers and sellers. See the second half of Chap-
ter 7.
discount rate the rate of return on investment that would be required
by a prudent investor to invest in an asset with a speci¬c level risk. Also,
a rate of return used to convert a monetary sum, payable or receivable
in the future, into present value.4
fractional interest discount the combined discounts for lack of control
and marketability.
g the constant growth rate in cash ¬‚ows or net income used in the ADF,
Gordon model, or present value factor.
Gordon model present value of a perpetuity with growth. The end-of-
year Gordon model formula is 1/(r g), and the midyear formula is
1 r/(r g). See Chapter 3.
log size model Abrams™ model to calculate discount rates as a function
of the logarithm of the value of the ¬rm. See Chapter 4.
markup the period after an announcement of a takeover bid in which
stock prices typically rise until a merger or acquisition is made (or until
it falls through).
Ordinary least squares (OLS) regression analysis a statistical technique
that minimizes the sum of the squared deviations between a dependent
variable and one or more independent variables and provides the user
with a y-intercept and x-coef¬cients, as well as feedback such as R2 (ex-
plained variation/total variation) t-statistics, p-values, etc. See Chapter 2.
NPV (net present value of cash ¬‚ows) Same as PV, but usually includes
a subtraction for an initial cash outlay.
PPF (periodic perpetuity factor) a generalization formula invented by
Abrams that is the present value of regular but noncontiguous cash ¬‚ows
that have constant growth to perpetuity. The end-of-year PPF is equal to:
r)b
(1
PPF
r) j g) j
(1 (1
and the midyear PPF is equal to
r)b
1 r (1
PPF
r) j g) j
(1 (1
where r is the discount rate, b is the number of years (before) since the
last occurrence of the cash ¬‚ow, and j is the number of years between
cash ¬‚ows. See Chapter 3.
PV (present value of cash ¬‚ows) the value in today™s dollars of cash
¬‚ows that occur in different time periods.


4. Ibid.




Glossary
476
r)n, where n is the
present value factor equal to the formula 1/(1
number of years from the valuation date to the cash ¬‚ow and r is the
discount rate. For business valuation, n should usually be midyear, i.e.,
n 0.5, 1.5, . . .
QMDM (quantitative marketability discount model) model for calcu-
lating DLOM for minority interests.5
r the discount rate
runup the period before a formal announcement of a takeover bid in
which one or more bidders are either preparing to make an announce-
ment or speculating that someone else will.




5. Z. Christopher, Mercer, Quantifying Marketability Discounts: Developing and Supporting Marketability
Discounts in the Appraisal of Closely Held Business Interests (Memphis, Tenn: Peabody, 1997)




Glossary 477
Index




Amihud, Y., 232, 282, 379, 381 Freeman, Neill, 233“234, 283
Andersson, Thomas, 219, 283 French, Kenneth R., 119, 146, 155
Annin, Michael, 148, 155

Gilbert, Gregory A., 146, 155, 167
Glass, Carla, 208, 224, 226
Banz, Rolf, 119, 155
Golder, Stanley C., 410, 431
Barca, F., 220, 282
Gordon, M.J., 59, 90n
Bergstrom, C., 282
Gordon model, 25, 50, 59“60, 63“79, 87“90, 93“
Berkovitch, E., 221, 282
97, 140, 153, 157, 175“176, 207, 230, 263“264,
Bhattacharyya, Gouri K., 22, 52
287, 385“387, 392, 394, 396, 398“399, 403
Black, Fisher, 303
Grabowski, Roger, 113, 119, 126, 144, 146, 148“
Black-Scholes options pricing model (BSOPM),
151, 155, 166, 241
192, 235, 246, 251“254, 256, 281, 303, 305“306
Gregory, Gordon, 258n
Black-Scholes put option, 233, 243“246, 298, 306
Guideline Company Method, 46“52, 59, 114,
Boatwright, David, 258n
153, 167“168
Bolotsky, Michael J., 198, 200“206, 230“231, 282
Bradley, M.A., 210, 220, 224“225, 233, 282
Brealey, R.A., 175, 177
Hall, Lance, 236, 298
Hamada, R.S., 183, 190
Harris, Ellie G., 222, 282
Center for Research in Security Prices (CRSP),
Harrison, Paul, 113, 131, 133“135, 155
162n
Hayes, Richard, 134, 155
Chaffe, David B.H., 241“242, 251, 282, 307, 317
Hiatt, R.K., 246n, 262n, 287n, 405n
Copeland, Tom, 176
Hogarth, Robin M., 250, 282
Crow, Matthew R., 249
Horner, M.R., 220, 282
Houlihan Lokey Howard & Zukin (HLHZ)
studies, 198, 206, 210, 212“213, 217, 226, 329n
Desai, A., 210, 220, 224“225, 233, 282 Hull, John C., 241n


Eckbo, B.E., 220“221, 282 Ibbotson & Associates, 120, 134, 147n, 148, 155,
Einhorn, Hillel J., 250, 282 162, 170, 176“177, 385, 387, 404
Ellsberg, Daniel, 250, 282 Ibbotson, Roger G., 139n, 147, 151, 154“155, 207
Euler™s constant, 49, 51 Indro Daniel C., 175, 177
Excel, 2, 44, 51, 115, 124, 136 Institute of Business Appraisers (IBA), 272“273


Fagan, Timothy J., 214, 217, 283 Jacobs, Bruce I., 119, 152“153, 155, 167
Fama, Eugene F., 119, 146, 155 Jankowske, Wayne C., 200“201, 204“206, 231,
Fama-French Cost of Equity Model, 147“148 282
Fowler, Bradley, 405, 410“411, 414“415, 431 Johnson, Bruce A., 274, 276, 282
Franks, J.R., 221, 282 Johnson, Richard A., 22, 52




479




Copyright 2001 The McGraw-Hill Companies, Inc. Click Here for Terms of Use.
Joyce, Allyn A., 170, 177 Neal, L., 134, 155
Julius, J. Michael, 249 Newton, Isaac, 156


Obenshain, Douglas, 258n
Kahneman, Daniel, 247, 284
Kaplan, Paul D., 147, 155
Kasper, Larry J., 88n, 222, 234“235, 281“282
Pacelle, Mitchell, 411, 431
Kasper bid-ask spread model, 191, 222, 234“235
Paudyal, Krishna, 210, 222, 235, 283
Kasper discounted time to market model, 232
Peterson, James D., 147, 155
Kim, E.H., 210, 220, 224“225, 233, 282
Phillips, John R., 233“234, 283
King, David, 113, 119, 126, 144, 146, 148“151,
Plummer, James L., 410, 431
155, 166, 241, 282
Polacek, Tim, 236, 298
Koller, Tim, 176
Pratt, Shannon P., 18, 19, 42, 46, 52, 207, 235,
253, 283, 350, 364, 381
Pratt, Stanley E., 431
Lang, L.H.P., 221, 282
Lease, Ronald C., 210, 212, 214, 217, 219, 227,
231, 280 Reilly, Robert F., 18, 19, 42, 46, 52, 235, 251, 253,
Lee, Wayne Y., 175, 177 283
Lerch, Mary Ann, 282 Roach, George P., 206, 221, 224“225, 283
Levy, H., 220, 283 Roll, Richard, 210, 283
Levy, Kenneth N., 119, 152“153, 155, 167 Rothschild, Baron, 134n
Lotus, 2, 44“45, 124, 136 Rydqvist, K., 220, 279, 282“283


Schilt, James H., 281
Maher, Maria, 219, 283
Schweihs, Robert P., 18, 19, 42, 46, 52, 235, 251,
Management Planning, Inc., 235“241, 250“251,
253, 283
255“256, 273“275, 279, 298“303, 330
Schwert, G. William, 151“152, 155, 192, 209“211,
Maquieira, Carlos P., 210, 220“221, 224“227,
220“222, 235, 255, 269, 283, 335n
283
Scholes, Myron, 303
McCarter, Mary M., 208, 224, 226, 282
Scott, William Jr., 140n
McConnell, John J., 210, 212, 213“214, 217, 219,
Seguin, Paul J., 151“152, 155
227, 231, 282“283
Shannon, Donald, 3
Megginson, William L., 210, 212“214, 219“221,
Shapiro, E., 59, 90n
224“227, 283
Sharpe-Lintner model, 146
Mendelson, Haim, 232, 282, 379, 381
Simpson, David W., 283
Menyah, Kojo, 210, 222, 235, 281
Solomon, King, 134
Mercer, Z. Christopher, 59, 90n, 191“192, 197,
Stern, Joel, 281
200“203, 206“209, 224“226, 232“235, 248“249,
Stillman, R., 220, 283
252, 273“281, 283, 317, 350, 477n
Stoll, H.R., 223, 283
Mercer Quantitative Marketability Discount
Stulz, R., 282
Model (QMDM), 2, 59, 89, 191, 232“234, 248“
249, 273“281, 477
Mergerstat Review, 198, 201, 203, 209n, 225,
Thomas, George B. Jr., 155“156
233“234
Tversky, Amos, 247, 284
Meyers, Roy H., 235n
Twain, Mark, 170
Mikkelson, Wayne H., 210, 212“214, 217, 219,
227, 231, 282
Miles, Raymond, 272, 359n, 379, 381
Vander Linden, Eric, 207, 284
Miller, Merton, 449n
Modigliani, Franco, 449n
Morris, Jane K., 431 Walkling, R.A., 280
Much, Paul J., 214, 283 Watson, John Jr., 236n, 255n
Murrin, Jack, 176 Williams, J.B., 59n, 90n
Myers, Stewart C., 175“177, 411 Wonnacott, Thomas H., 22, 52
Wonnacott, Ronald J., 22, 52

Nail, Lance, 210, 220“221, 224“227, 283
Nath, Eric 200“204, 206“209, 227, 283 Zingales, L., 220, 284
Narayanan, M. P., 221, 282 Zukin, James H., 207, 284




Index

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. 99
( 100 .)



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