BU121 Study Guide - Final Guide: Income Approach, Human Capital, Social Capital
Document Summary
Based on assumption that value of business equals the sum of the present values of any expected future benefits - income stream and/or liquidity event. Value is determined based on comparisons to similar companies for which values are known. Value determined as measure of net cost of assets, original amount invested or cost-to-duplicate . No hard and fast rules for valuations early stage companies (too many unknowns) Valuation professionals need 3 things to value any asset: an income stream, a growth rate, a discount rate. In early stage companies at least 2 of the 3 is subject to substantial uncertainty. Because the development of projections depends on specific outcomes and milestones, one scenario of cash flow is inadequate. The risk of failure is likely higher than the present value discount rate (venture capitalists consider portfolios of investments) If losses are forecast in the first few years, it is likely they that they will occur and even greater ones.
