Valuation Methodology Research Articles

The shareholder’s appraisal remedy under the Companies Act: How should the courts gauge ‘fair value’?

The appraisal remedy is the right of minority shareholders to demand that the company buy out their shares in cash, at a price reflecting their ‘fair value’, when they are aggrieved by certain triggering transactions that the majority shareholders have approved. The appraisal right is an American concept that was introduced into South African law when the Companies Act 71 of 2008 came into force. The most formidable challenge concerning the appraisal right is the meaning and interpretation of the key phrase ‘fair value’ and, coupled with this, the appropriate valuation methodology that the court ought to adopt when valuing the shares of dissenting minority shareholders. Two recent judgments of the High Court have considered these thorny issues for the first time. This article critically analyses the findings of the High Court in BNS Nominees (RF) (Pty) Ltd v Zeder Investments Ltd and BNS Nominees (RF) (Pty) Ltd v Arrowhead Properties Ltd, with a particular focus on the divergent approaches that the two cases adopt in gauging the ‘fair value’ of the dissenters’ shares and the judicial discretion to appoint an appraiser to value the shares. This is followed by a detailed discussion of the proper interpretation of the pivotal phrase ‘fair value’ in appraisal proceedings and of appraisal valuation methodology. This is done with reference to the legal position in comparable foreign jurisdictions such as the United States of America and Canada. Guidelines are also suggested for the South African courts to follow when gauging the ‘fair value’ of shares in appraisal cases.

A Predictive Framework for Photovoltaic Waste Quantities and Recovery Values: Insights and Application to the Italian Context

Abstract The global surge in photovoltaic (PV) panel deployment since the 2000s has contributed to advancing the renewable energy sector. However, this proliferation raises concerns about the increasing number of PV modules that will end their operational life in the coming years, necessitating effective planning for their decommissioning and recovery. This paper addresses this imminent challenge by presenting a predictive model to estimate the volume of decommissioned PV modules from existing installations. To consider the variability associated with the operational life duration of PV panels, two different scenarios were considered: early loss and regular loss, both modelled through the Weibull function. Furthermore, the article proposes a methodology for the economic valorization of materials recovered from decommissioned PV modules, according to the different technologies employed. This approach encourages sustainable practices by assigning an economic value to recovered materials and promoting a circular economy in the renewable energy sector. The economic valuation methodology adds practicality to dismantling, emphasising responsible waste management’s potential economic benefits. To illustrate the applicability of the model, the study focuses on the Italian case, providing a detailed regional breakdown. The regional analysis not only improves the accuracy of the predictive model but also offers insights into localised PV module disposal patterns. By adapting the methodology to the individual Italian regions, the article serves as a concrete and valuable resource during the programming and planning phases, facilitating the implementation of a strategy to efficiently recover PV modules and minimising the environmental impact associated with decommissioning activities.

Real estate and its valuation methodology

The article defines the concept of real estate and determines its features and types, as well as the methodology for determining its value. In terms of valuation, the analysis in particular refers to the approaches, methods and techniques used in this process. Moreover, it contains rules that should be followed by property appraisers when carrying out an assessment. A summary of considerations and the resulting conclusions are included at the end of this article.

FIRM VALUATION WITH DATA ENVELOPMENT ANALYSIS: BORSA IṠTANBUL EXAMPLE

Objective of this study is to present an example of firm valuation with Data Envelopment Analysis (DEA), which is an alternative and new firm valuation method, and to contribute this limited field of research area with new findings. With this objective in mind, after giving information about the theory of valuation, market-based valuation, DEA and methodology of firm valuation with DEA, BIST 100 indexed firms in Borsa Istanbul are valued with DEA in this study. Results shows that 69% of the estimated value ranges and 73% of the maximum values estimated cover the market values of the relevant firms. It can be said that this method, which is understood to have more successful estimation results in case the number of firms in peer groups increases, is a very useful method for testing the results obtained from other firm valuation methods.

Real Option Valuation Methodology for Household-Scale Renewable Energy Systems

The installation of household-scale renewable energy (RE) assets including the likes of solar home systems, micro-wind turbines, pico-hydro systems, biomass space heaters and improved cook-stoves, offers householders various benefits. These include the possibility of working longer hours, enhancing the efficiency of production processes, improving the quality of life, and of gaining greater control over their immediate environment. In several settings, artisans pursuing the same vocation work from homes located in clusters. Consequent to procuring and deploying the RE asset, the community of individual investors bestows upon itself the option to derive incremental money incomes. This is subject to each member’s access to working-capital credit and raw material,skill levels and levels of effort, productivity, and more. This paper argues that householders assess the option to derive incremental incomes and go on to makethe investment decision in RE micro-infrastructure based on the estimated value of such options. The model so developed is applied to a community of silk weavers in southern India to estimate the premiumsthatinvestors pay to opt into derivingincremental incomes. This study could estimate that by installing a Solar Home System, a weaver could derive an economic benefit of 17.36% and an intangible benefit of 82.64% of the amount invested into the asset.

Public willingness to pay for mitigating local conflicts over the construction of renewable energy facilities: A contingent valuation study in South Korea

Despite the significant environmental benefits of transitioning to renewable energy sources, the development of renewable energy infrastructure may impose social and indirect environmental costs in siting areas. This creates a discordance between widespread public support for the energy transition and local community opposition to the construction of facilities near them. This study estimated the amount the public is willing to pay to prevent adverse impacts from such conflict using a contingent valuation methodology. The results indicate that the public's willingness to pay for mitigating local conflicts varies depending on their cause, with damage to the living environment considered most important. In addition, individuals who do not expect to directly face the negative externalities of electricity-related infrastructure during their lifetime are less willing to pay for its mitigation, while those who are know more about energy policy and are satisfied and credible with electricity services would likely pay more. Based on the findings, appropriate policy actions should be taken in a timely manner to facilitate societal agreement on the sharing of costs associated with the deployment of renewable energy infrastructure and to prevent additional costs from delaying the transition process.

DG Locational Value in Distribution Systems Considering Reliability via Cooperative Game Theory

This paper presents a new methodology for valuation and remuneration of distributed generation (DG) sources in distribution power systems. The main concept is the shaping of a tariff signal capable of capturing the effects of DG, accurately measuring the costs and benefits and allocating them according to the responsibility of each generating agent, in view of their site in the grid. This signaling is composed by the changes provoked by DG in four tariff properties: network usage, electrical losses, peak load, and reliability indices. The allocation of responsibilities among generators is performed using the Shapley value from the cooperative game theory. To illustrate the proposed methodology, the IEEE RBTS DG version and a Brazilian distribution network are used and the results obtained are widely discussed.

Willingness to pay for antiretroviral therapy, viral load, and premium services; A contingent valuation survey of people living with HIV in southern Nigeria.

With stagnating funding for HIV and AIDS control programs in Nigeria, alternative funding models for antiretroviral therapy (ART) including out of pocket payment are being considered to sustain momentum epidemic control targets. We assessed willingness to pay for ART related services, and factors associated with willingness to pay. Between July and August 2019, we conducted a survey among people living with HIV (PLHIV) on ART in 3 states in southern Nigeria. Randomly sampled respondents on ART for at least 6 months, aged ≥ 18 years, able to communicate in English or pidgin English, and consenting to the survey were enrolled. Respondents were asked if they were willing to pay for clinical consultation, antiretroviral drugs (ARVs), viral load testing services and premium ART services (including fast track services). Respondents indicating willingness to pay for any of these services were asked the maximum amount they were willing to pay using contingent valuation methodology. We assessed the weighted proportions of PLHIV on ART willing to pay for ART and used survey-featured logistic regression measures to assess sociodemographic and ART related factors associated with willingness to pay for ART services. Overall, 1,598 PLHIV with a mean age of 39.03 years (standard deviation [SD]: 11.23 years), were included in this analysis. Of these, 65.8% (1,079), 73.9% (1,192), 61.0% (995) and 33.6% (472) were willing to pay for ART consultation, ARVs, viral load testing services and premium ART services respectively. The median maximum amount PLHIV were willing to pay for clinical consultation and for ARVs was NGN1,000 (USD equivalent of $2.78; interquartile range [IQR]: 500-2,000) respectively, and NGN2,500 (USD equivalent of $6.94; IQR: NGN1,000-5,000) and NGN2,000 (USD equivalent of $5.56; IQR: NGN1,000-3,000) for viral load testing and premium ART services respectively. Receiving ART in Lagos state, being employed and having a monthly income of NGN100,000 or more was associated with willingness to pay for the various ART services. We found generally high-level of willingness to pay for ART consultation, ARVs and viral load testing services but low willingness to pay for premium ART services among PLHIV on ART. The maximum amount PLHIV were willing to pay for various ART services fell short of benchmarks for alternative funding but can potentially supplement ART by funding differentiated service delivery models that require nominal amounts to facilitate person-centered differentiated service delivery models.

Asian Paints: a valuation dilemma

Learning outcomes This case study will allow students to understand and analyse the process for conducting equity valuation by building a three-statement financial model, to understand and apply the workings of discounted cash flow (DCF) valuation methodology and its components, to apply the concepts related to the calculation of the weighted average cost of capital in the determination of discounting rate, to understand the terminal value calculation and assumptions thereof and to analyse the intrinsic valuation for the target company using the traditional multi-stage DCF model for investment decision-making. Case overview/synopsis In July 2019, Kapil Agarwal, an equity analyst operating out of Mumbai, India, was carefully looking over the financials of Asian Paints, a leading paints company in India. As an equity analyst, Kapil was constantly on the lookout for fundamentally strong but undervalued companies that could create long-term wealth for his equity fund. To decide upon the right valuation of Asian Paints, Kapil conducted fundamental analysis using the DCF method on the basis of available financial information. This case study puts students in an investment analyst role wherein they forecast financial statements and conduct DCF valuation for Asian Paints to discover potentially undervalued stocks for investment decision-making. Complexity academic level This case study is designed for use in an undergraduate or postgraduate programme in business management, particularly in a course on business valuation or investment management or security analysis. Supplementary materials Teaching notes are available for educators only. Subject code CSS 1: Accounting and Finance.

Relationship between Variations in Valuation Methodologies: Evidence from Polish Construction Market

Making investment decisions in modern conditions is quite complicated. On the example of the construction industry, the article tests the approach based on WACC and WARA analyses. The risk and profitability of the specified markets were analyzed based on the Efficient Frontier method. The Polish market and the group of Euronext markets were selected for comparison. The necessity of calculation of WARA based on only significant assets was determined. The differentiation between WARA and WACC in the Polish construction market can be overcome by maximizing goodwill and intangible assets and minimizing tangible assets. It reveals problems not in the stock market, but in the industry and the economy as a whole, particularly the lack of functioning markets such as the stock market for individual assets. The role of intangibles is different for Euronext markets. On the other hand, the requirement of the international accounting standards to transfer goodwill from assets to "other income" in case of a negative value (bad will) makes adequate consideration of goodwill in the WARA model virtually impossible. Another problem is a calculation of relative weights of assets in conditions of occurrence of both positive and negative values, which creates prerequisites for different approaches and interpretations. Building material that is used in the construction industry tries to improve the environment. the source of building materials are natural resources such as sandstone.

Economic valuation of selected coastal ecosystems based on key provisioning and regulation services of Jaguaruna (Brazil)

The search for sustainability can be understood as a trajectory towards the maintenance of ecosystem services, which includes ways of minimizing the risk of losing them due to some imminent coastal hazard. Thus, this study aimed to evaluate the state of key-ecosystem services of provisioning and regulation in the southern coast of the state of Santa Catarina in the face of coastal stressors. For the development of the research, eight types of ecosystems were identified and mapped, according to a key ecosystem service offered by each of them, and the four largest in area were selected to apply the environmental valuation methodologies. The methodologies used were the Avoided Costs Method (ACM) and the Replacement Cost Method (RCM). The ACM calculates the economic value of the benefits that an ecosystem provides that would not be available if it did not exist. In turn, the RCM is based on the replacement cost of a damaged asset. Valuation results for Agriculture and Cattle farming; Continental waters and Marine environment; and Afforestation were respectively 1.74; 2.86; 2.89 million of dollars per year, while results for Dunes, Beaches and Restingas were in the range of USD 3,120–6,240 ha-1 yr-1. These values should be understood as approximations of the true economic dimension of the damages caused by the use of ecosystems, since they correspond to how much the environment is capable of monetarily returning to individuals. Furthermore, these values cannot be used to calculate fines in case of environmental degradation.

FEATURES OF VALUATION OF STARTUP PROJECTS IN ENTREPRENEURIAL ACTIVITY

Startup valuation, an intricate endeavor due to the unique characteristics of these entities, presents distinct challenges when compared to the valuation of well-established companies. This article examines the complexities inherent in valuing startups, shedding light on the absence of historical data, heightened levels of risk associated with startups and their dynamic environments, the inherent uncertainty in forecasting future development, and the pronounced influence of intangible assets on the overall business valuation. In addressing the valuation of startups, several methods are explored, each with its advantages and limitations. The scenario-based approach, encompassing a range of potential outcomes from successful to failure scenarios, provides a comprehensive assessment of startup value. Additionally, the venture capital method, relying on expected company value at the investor’s exit point, enables valuation without the need for exhaustive cash flow forecasting. These methods take into account the unique dynamics of startup growth and risk. Furthermore, the article stresses the significance of meticulous market analysis, rigorous evaluation of company potential, examination of industry-specific data, and careful consideration of tax incentives. These factors are crucial for a thorough understanding of the startup’s financial health and future trajectory, which directly impacts its value. To achieve a more objective and accurate valuation, it is recommended to employ a combination of valuation methods, considering the startup’s stage of development and specific characteristics. Diverse data sources, including empirical studies and industry benchmarks, can enhance the accuracy of estimates. In conclusion, the article asserts the importance of advancing startup valuation methodologies. Drawing from international experience and conducting in-depth research in specific areas can lead to improved precision, enhanced objectivity, and reduced risks of errors in the valuation process. By refining the valuation techniques, stakeholders can make more informed investment decisions and contribute to the growth of the vibrant startup ecosystem.

Increasing The Social Equity by Implementing a Proper Methodology of Statistical Life Valuation

This paper aims to propose an appropriate method for the monetary evaluation of statistical life (VSL) that could be used to obtain a unique value of that indicator for each individual in the world. In fact, all the analysis in this field must start from the idea that people are equal in the world, without taking into account the economic or social differences existing on the planet.

Valuation accuracy in the residential property markets in Minna and Abuja, Nigeria

PurposeThe rising concern for the accuracy of residential valuations in Nigeria has created the need for key stakeholders in the residential property markets in the study areas to know the level of accuracy of valuations in order to make rational residential property transactions, amongst other purposes.Design/methodology/approachA blend of descriptive and causal designs was adopted for the study. Data were collected via structured questionnaire administered to 179 estate surveying and valuation (ESV) firms in the study areas using census sampling technique. Analytical techniques such as median percentage error (PE), mean and relative importance index (RII) analysis were employed in the analysis of data collected for the study.FindingsThe study found that valuation accuracy is greater in the residential property market in Abuja than in Minna, with inappropriate valuation methodology as the most significant cause of valuation inaccuracy.Practical implicationsThe practical implication of this study is that a reliable databank should be established for the property market to provide credible transaction data for valuers to conduct accurate valuations in these cities. Strict enforcement of national and international valuation standards by the regulatory authorities as well as retraining of valuers on appropriate application of valuation approaches and methods are the recommended corrective measures.Originality/valueNo study has comparatively examined the accuracy of valuations in two extremely different residential property markets in the country using actual valuation and transaction prices.

What is the value of data? A review of empirical methods

AbstractWith the growing use of digital technologies, data have become core to many organizations’ decisions, with its value widely acknowledged across public and private sectors. Yet few comprehensive empirical approaches to establishing the value of data exist, and there is no consensus about which methods should be applied to specific data types or purposes. This paper examines a range of data valuation methodologies proposed in the existing literature. We propose a typology linking methods to different data types and purposes.

Valuation of Software Agency for Pre IPO Using DCF and Relative Valuation Method (Study Case: PT XYZ)

An Initial Public Offering (IPO) is a pivotal moment in a company’s life cycle. It’s a process where a private company offers its shares to the public in the capital market to raise funds. The move from private to public affecting the company to prepare for many changes, including increased supervision and the responsibility of delivering value to shareholders. However, before stepping on this significant IPO step, the company needs a clear understanding of various factors, which includes macroeconomic conditions, the dynamics of the market it operates in, and the company’s internal conditions. The company, PT XYZ, specializes in creating software solutions, a sector that is currently needed by a lot of company due to digitalization era. Fair share price for PT XYZ must be calculated when it goes public. In addition to understanding the macroeconomic condition, the Porter’s Five Forces framework is described to assess the competitive aspect in the market and potential opportunities. After analysing the external factors, the next step is doing in-depth internal analysis. This involved a SWOT analysis by identifying PT XYZ’s Strengths, Weaknesses, Opportunities, and Threats, and an evaluation of the company’s financial health. The business solution proceeded to the valuation stage, using the Discounted Cash Flow (DCF) method with Free Cash Flow to Equity (FCFE). This process involved making growth projections for the next decade. It anticipates that the company’s growth rate would eventually align with Indonesia’s Gross Domestic Product (GDP), serving as the long-term growth rate. To ensure a holistic evaluation, there must be a complementary valuation method, Relative Valuation. Three similar companies in the software sector were picked and their EV/EBITDA was used as a multiplier ratio. The two separate valuation methodologies led to two distinct results. Thus the average of these two methods can be proposed. Overvalued or undervalued share pricing can significantly affect investor decisions and the amount of funds raised from the IPO.

Suitable contract instruments and intellectual property valuation methodologies for industry-university collaboration

We propose and evaluate contractual- and Intellectual Property (IP) instruments in support of research collaboration partnerships between universities and the Small, Medium and Micro Enterprises (SMME)-industry, and more specifically in the South African context. Interviews were conducted with executives from 11 South African originated SMME’s in the high-technology industry. The findings of this study and potential solutions were then verified and validated with SMME’s, large multinational industry and universities (in South Africa and international) and can be considered as good practice principles to assist in industry-university collaboration (IUC). One aspect that was reported with high occurrence, is the matter of IP valuation, as it can often create further barriers in IUC. The question regarding how to value the IP and any rights relating thereto (IPR’s), is attended to in this study and shared experiences from industry and universities provide insights in the considerations and principles to be used when entering discussions regarding IP valuation.

Consumer willingness to pay for vanilla using contingent valuation analysis

Objective: To show the willingness to pay a premium for vanilla from the Totonacapan region through contingent valuation analysis for the strengthening of vanilla in the local market. Design/methodology/approach: To contingent valuation methodology (CV) was followed to estimate the WTP, based on consumer surveys in the Totonacapan region. The information analysis was carried out by the XLSTAT 2019 software through logistic regression of the willingness to pay data in a binary response with a confidence interval of 95% and with 100 iterations, and maximization of the likelihood function with the Newton-Raphson algorithm. Results: The results indicate that 55.63% of the consumers agree that certification increases the potential to pay a premium; the accessibility of vanilla is important for 66.56% of consumers; previous experience with the brands and product behavior is paramount for 56.95% of all consumers; regarding the origin of vanilla, it is important for 65.23% of consumers. Findings/conclusions: Production by small-scale local producers is an appreciated quality because it is related with the symbolic dimension and is appreciated by 68.54% of consumers.

Inflation-Adjusted Bonds, Swaps, and Derivatives

The purpose of this article is to review the literature on inflation-adjusted bonds, swaps, and derivatives. The methodology for valuation and risk management of these securities is an application of the foreign currency extension of a standard HJM term structure model. The two “currencies” in the extended model are real and nominal prices. Currently, for their use in monetary policy, the empirical literature primarily uses these models to estimate both the expected inflation rate and the inflation risk premium. A literature investigating the efficiency of the inflation derivative markets and a comparison of the relevant valuation models is almost nonexistent and a fruitful area for future research.

Housing vulnerability, agricultural production, and goods lost estimated to floods in Rio Nuevo a rural community in Colombia

Floods affect households, crops, and assets, especially in rural areas in Colombia; due to the lack of risk management plans, settlements without core services and land use planning, atypical natural phenomena, and climate change. The floods recorded since 1964, in the rural community of Rio Nuevo in the department of Córdoba, but there is a lack of estimates of the economic losses and housing vulnerability. The research aim was to determine the degree of physical vulnerability and estimated economic losses in crops and goods due to flooding in the local community of Río Nuevo, Valencia Town. The methodological guide for the elaboration of departmental plans for risk management (known in Spanish as PDGR),  and the methodology for the economic valuation of potential direct tangible damages, was selected the variables (age, construction, regulations, soil, walls, floors, goods, and crops), questions, surveys to population, available data, proceed to process the information, elaborate maps and analyze. The results reveal physical vulnerability high in Rio Nuevo, with a value of 0.63 on a scale of 0 to 1. The rural community houses built located at a distance of fewer than 30 meters, mainly with wood, the soil of alluvial deposits, faced floods, humidity damages, hardening resistance, and non-quality life. The economic losses estimated between goods and crops were US$174200.22. A poverty condition, poor infrastructure, and unfavorable places, hamper improve the quality of the people. Colombian government need to excecute a proper infrastructure investment to reduce persistence vulnerability and relocated this riverside area, according to its culture and traditions, and protect the economy around crops