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When it comes to valuing minority interests in family investment entities such as family limited partnerships, business valuation professionals have not often used the income approach. However, in three recent Tax Court cases, the income approach was prominently featured, and, in one case, it was clearly the deciding factor in the court’s decision. Join William Frazier to learn about the nonmarketable investment company evaluation (NICE) method. Learn its origins, what it doesn’t replace, and how it has evolved over time. Attend this program and learn the latest about NICE. Also, by attending the program, you are eligible to receive, at no additional charge, the new, simplified NICE model, which will be coming out in the spring.
Program Agenda
Holding period ranges
Probability distributions
Asset classes and rate of return
Distributions
Lack of control
Mean reversion of returns
Asymmetrical information
Incremental RROR for lack of control
Lack of marketability or illiquidity
Survey of the academic literature
Incremental RROR for lack of marketability
Portfolio return
Determination of curve of best fit
One value
Iterative technique
Fair market value
Learning Objectives
Participants will learn that the income approach has come of age in valuing FLPs in Tax Court. The failure to use the income approach can put you at a competitive disadvantage
Participants will learn how the relationship between FMV and NAV (also known as the “total discount”) varies with time and risk. Further, the result is quantitatively determined based on salient, objective evidence
Participants will learn why the incremental rates of return for lack of control and lack of marketability are not static and must vary with time
Participants will learn how distributions and the future probability of liquidation affects value
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