An Independent Evaluation of the Reliability of the Implied Private Company Pricing Line Model in Appraisal Practice

Dawson Peter C. ()
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Dawson Peter C.: Independent Scholar, Ridgefield, CT, USA

Journal of Business Valuation and Economic Loss Analysis, 2017, vol. 12, issue 1, 63-99

Abstract: The Implied Private Company Pricing Line (IPCPL) model is intended to calculate a reliable present value discount rate for a 100 % control interest in a private/closely-held operating company under the Fair Market Value Standard. But, would its application be more reliable than the Adjusted Capital Asset Pricing Model (ACAPM) or Build-Up Method (BUM)? This article evaluates two core aspects of the model’s practical application that have received little attention in the literature: (1) Does it eliminate a significant portion of subjective adjustments? The private company market’s adjustment for key marketability differences is said to be built into the private company transaction prices, eliminating the need for an appraiser to subjectively quantify and apply those adjustments; and (2) Being “actual market clearing prices”, do the private company transaction prices reflect Fair Market Value?

Keywords: IPCPL model; present value discount rate; opportunity cost; cost of capital; required rate of return; fair market value; hypothetical market construct (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1515/jbvela-2016-0003

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