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

Chamberlain Travis, Hill John W, Kamma Sreenivas and Karam Yassir
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Chamberlain Travis: Valuation and Forensic Services Group, Clifton Gunderson, LLP
Hill John W: Kelley School of Business, Indiana University
Kamma Sreenivas: Kelley School of Business, Indiana University
Karam Yassir: Valuation and Forensic Services Group, Clifton Gunderson, LLP

Journal of Business Valuation and Economic Loss Analysis, 2008, vol. 2, issue 2, 25

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.

Keywords: complex capital; structure; valuation (search for similar items in EconPapers)
Date: 2008
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DOI: 10.2202/1932-9156.1021

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