Cash Equivalence

May 31st, 2007 | Dental Practices | Market Approach

In my previous post, I raised the problem with determining the cash-equivalence required by the definition of "fair market value" when using "deal-based" market data. Besides the database that bears his name, Dr. Shannon Pratt (and his co-authors) devotes a chapter (#27) in Valuing Small Businesses and Professional Practices to the topic. Of particular interest is the comment regarding personal guarantees on page 494 (suggesting an interest rate premium over bank lending rate of 3% where there is no personal guaranty) and the example on page 500 dealing with contingent buyout payments. In that example, the cash-equivalent price is 55% of the deal price.

Nuff said.

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