Journal of Business Valuation and Economic Loss Analysis

Published by De Gruyter

Volume 2 Issue 2

December 2007

Issue of Journal of Business Valuation and Economic Loss Analysis

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Contents
Journal Overview

Article

January 3, 2008

WACC or APV?

Jaime Sabal

Abstract

Miller and Modigliani's seminal papers (1958, 1963) gave rise to two alternative methodologies for project and firm valuations: the Weighted Average Cost of Capital (WACC) and Adjusted Present Value (APV). As is often the case of many larger firms in industrialized economies, whenever a target debt ratio is set up for the long term, WACC might be a good approximation. However, APV has certain advantages making it more convenient for smaller companies with unstable debt ratios, in countries with complex tax legislation and in emerging markets where high economic uncertainty makes the leveraging decision much more opportunistic.

January 3, 2008

Macroeconomic Activity and the Compensation of Health Care Workers

Bradley T Ewing, James J. Hoffman, Mark A. Thompson

Abstract

This paper identifies the responses of measures of health care workers' relative compensation to unexpected changes in several macroeconomic variables. The results provide time series information about the relative compensation of workers in the health care sector of the economy. The findings will be valuable to those engaged in economic loss analysis, business valuations and assessments, and related research that often requires industry-specific knowledge about business conditions, trends in cost factors, and the overall economic environment. Moreover, the results should be important to health care managers and administrators who must plan for labor market changes following macroeconomic events.

January 3, 2008

Risk-Adjusted Performance as a Rigorous Approach to Removing Subjectivity from Expert Assessments of Suitability

A. E. Rodriguez, Steven J Shapiro

Abstract

A broker has an obligation to ensure that his client incorporates suitable assets into his portfolio. Greater objectivity can be brought to assessments of suitability by comparing the performance of the aggrieved investor's portfolio to a benchmark portfolio using the Modigliani & Modigliani risk-adjusted performance measure. The applicable counterfactual benchmark could be either a ``market" portfolio or a suitable alternative portfolio. The calculation of confidence intervals associated with the measured difference in risk-adjusted returns is demonstrated. Castaneda-like standards can be used as criteria for whether defendant's actions negatively impacted portfolio performance rather than outside events.

January 3, 2008

Testing for a Unit Root in the Net Discount Rate: A Survey of the Empirical Results

James E Payne

Abstract

This study provides a survey of the empirical results associated with testing for a unit root in the net discount rate. As suggested by the literature, the use of the historical average of the net discount rate in the calculation of the present value of lost future earnings is valid if the net discount rate follows a mean reverting, stationary process. However, if the net discount rate follows a mean averting, non-stationary process forensic economists should perhaps use the current value of the net discount rate in such calculations. A majority of the studies surveyed indicate that the net discount rate experienced a structural break in the late 1970s-early 1980s. In general, if the net discount rate is stationary as a result of a structural break, forensic economists should use the average net discount rate over the post-break period.

January 3, 2008

Navigating the Jungle of Valuing Complex Capital Structures in Privately Held Companies: An Integrative Simulation Approach

Travis Chamberlain, John W Hill, Sreenivas Kamma, Yassir Karam

Abstract

With the FASB's emphasis on fair value, valuation of privately held companies' capital structures has taken on additional emphasis. Each methodology proposed in the AICPA's Practice Aid "Valuation of Privately-Held-Company Equity Securities Issued as Compensation" can result in suboptimal valuations when valuing complex capital structures. We discuss valuation of such capital structures and offer a workable, integrated simulation methodology combining the strengths of the probability-weighted expected return method with those of the option-pricing method. We demonstrate the methodology using transformed real-world data resulting in a flexible methodology that can be expanded to accommodate various aspects of complex capital structures.

About this journal

Objective
The Journal of Business Valuation and Economic Loss Analysis (JBVELA) is a refereed academic journal that publishes continuously throughout the year and is co-edited by Bradley Ewing and James Hoffman. The mission of the Journal of Business Valuation and Economic Loss Analysis is to improve the practice of business valuation, economic loss analysis, and risk management by helping to inform academics, practitioners, and attorneys about theoretical and practical developments in these fields.

Topics

business valuation
economic loss analysis
risk management

Article formats
Research articles
The journal publishes three categories of manuscripts. The first category encompasses both empirically- and conceptually-based manuscripts that advance the fields of business valuation, economic loss analysis, or topics related to risk. The second category of manuscripts focus on the description of how theory has been put into practice, including case study examples. The third category of manuscripts concerns how recent rulings and changes in the law affect business valuation, economic loss analysis, and risk management practices, assessment, and analysis.

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