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Goodwill Estimation in case of Arm's Length and Forced Transaction

Gabriel Damian and Maria Stanica

The Valuation Journal, 2012, vol. 7, issue 2, 34-53

Abstract: The purpose of this study is to presents some particularities of Purchase Price Allocation method that should be considered in order that the entity's allocated value per its composing assets to be estimated in a credible manner. The credibility of the estimations can be ensured reconciling IRR with WACC, respectively WACC with WARA. By comparing these indicators, the valuer will be able to conclude whether the acquisition price of an entity is close to its market value, includes buyer-related synergies, reflects or not reflect all the information necessary to establish the correct price or whether the valuation methodology was correctly chosen and applied. The two cases analyzed in this article refer to the acquisition of an entity at a price equal to its market value and to the acquisition of another entity at a price smaller than its market value. In the first case, having a total access to the transaction data and the valuation accuracy being granted, these tests should not point out any problems, in the second case an economic analysis, different from the accounting analysis, should be performed.

JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2012
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Handle: RePEc:vaj:journl:v:7:y:2012:i:2:p:34-53