Navigating the Jungle of Valuing Complex Capital Structures in Privately Held Companies
2008, Journal of Business Valuation and Economic Loss Analysis
John W. Hill, Travis Chamberlain, Sreenivas Kamma, Yassir Karam
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.
Hill, John W., Travis Chamberlain, Sreenivas Kamma, and Yassir Karam (2008), “Navigating the Jungle of Valuing Complex Capital Structures in Privately Held Companies: An Integrative Simulation Approach,” Journal of Business Valuation and Economic Loss Analysis, Vol. 3, No. 1, January.