our business is burning, hit by lightening from a thunderstorm. The media asks y

Question

our business is burning, hit by lightening from a thunderstorm. The media asks you whether you will rebuild. Thank God you have replacement coverage for your firm. Some time ago, your competitor offered to buy you out at 1.5 times book value. Your appraised value indicated the firm was worth significantly more than that, possibly three times what he was offering. Your competitor countered that your tax value on the rolls of the county courthouse indicate that the building is worth only $100,000. You laughed and reminded him that this is not close to the market value the firm would sell for in the open market. Using the following valuation techniques, what is the firm worth? Which valuation technique is valid under these pending circumstances?(book, market, tax, appraised, and replacement)

Explanation / Answer

If we look the market for the business, the business still has the market. Tax value in this case is irrelevant as it is a seperate issue. According to the appraised reports the business is till worth three times than the offer of the competitor. Thus, Appraised Value technique should be valid under the circumstances.

Firm worth = Book Value*1.5*3

Note: Since the book value is not given in the question I cannot find the firm worth. Thus, only giving the equation for the same.

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