Valuating intellectual assets

DE Chancery prefers supply-side ERP  May 2, 2012 – 02:45 pm
VALUATING INTELLECTUAL ASSETS - diagram, schematic, and image 03

If the recent Golden Telecom case was the first indication that Delaware courts are moving away from a historical equity risk premium (ERP), a new statutory appraisal action from the Delaware Court of Chancery confirms that a supply-side ERP may indeed be the courts’ preference, if not presumption. At issue was the merger of a private company that provided mental health services for state prison populations; the deal closed at $40 million, but a group of dissenting shareholders claimed the going concern value of the company was closer to $55 million.

Both parties’ experts used a capital asset pricing model (CAPM) to calculate a cost of equity, but the petitioners’ expert relied on a supply-side ERP of 5.73% while the respondents’ expert applied a historical risk premium of 6.47%, defending it as the “industry standard.” The court acknowledged its reliance on the historic ERP in the past, but then cited the following passage from Golden Telecom:

When the relevant professional community has mined additional data and pondered the reliability of past practice and come, by a healthy weight of reasoned opinion, to believe that a different practice should become the norm, this court’s duty is to recognize that practice if, in the court’s lay estimate, the practice is the most reliable available for use in an appraisal.

Source: Business Valuation Law

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Technical Analysis is a good place to start. It

Lot of companies & narrows your focus. It should be followed by a clean fundamental analysis & then you whould establish entry & exit points based on valuation & time for each trade.
If the stock hits your low mark you bail. If it is profitable & hits your high mark, you sell half & continue to ride the wave.
Finally, make sure you are hedged. Use options to protect yourself against more than a certain amount of loss. You can always be wrong, just don't own it.

In Defense...continued

But a participatory economy enjoys advantages in managing this trade off compared to capitalism. Most importantly, direct recognition of 'social serviceability' is a more powerful incentive to innovation in a participatory economy, which reduces the magnitude of the trade off since more innovation will occur in a participatory economy than in capitalism for the same speed of adjustments. Secondl... Economy. Forthcoming.
Levy, David. 1991. Book Review: Seeking a Third Way. Dollars and Sense 171 November 1991: 18-20.
Pramas, Jason. 1991. A Roundtable on Participatory Economics. Z Magazine July/August 1991: 73-74.
Weisskopf, Thomas. 1992. Toward a Socialism for the Future in the Wake of the Demise of the Socialism of the Past. Review of Radical Political Economics 24 (3&4).

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