PART THREE
Loose Ends in Valuation
Thereliefwefeeloncewehavevaluedtheoperatingassetsof
a firmshouldbe short-lived. Itis in thisphase that major
errorsin valuationcreepin, largelybecausewe aresloppy
about dealing with loose ends.
InChapter10,westartbylookingathowbesttovaluethe
cashholdingsofafirm.Whileconventionalwisdomsuggests
thatadollarincashiswortha dollar,wepresentevidence
thatthemarketmayvalueadollarincashatlessthanadollar
insome companiesand morethanadollarin thehands of
othercompanies.Wefollow bysettingupaframeworkfor
valuing cross holdings, both minority and majority.
In Chapter 11, we evaluate how best to deal with equity
granted to employees in the form of options or restricted
stock.Thesegrantshavetobevaluedwhentheyaremadeand
they will affect both earnings and equity value.
InChapter12,weexaminewhetherintangibleassetsrequire
different valuation models and techniques than tangible
assets.Forintangibleassetsthatstandaloneandgeneratecash
flows,wearguethatdiscountedcashflow(DCF)valuationis
perfectlyadequate.Forintangibleassetsthatgeneratevalue
across a business (such as brand name), we present more
complicatedwaysofestimatingvalue.Finally,forintangible
assetsthathavethepotentialtocreatefuturecashflows,we
argue for the use of option pricing models.