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Contents
1. The determination of Goodwill
2. Mixed method formula
3. Input of Mixed method
4. Unlevered Mixed method
Goodwill is the value that is generally recognized by those that have invested
resources and capitalized energies over time, in order to bring the company to
a certain level of operation.
Equity Value
Goodwill
BV
Book Value
EqV
Value of assets
Value of goodwill
Contents
1. The determination of Goodwill
2. Mixed method formula
3. Input of Mixed method
4. Mixed method unlevered
W = K' + an i (R iK') + SA
W
K'
K' is the adjusted shareholders equity value, without considering the value of
the assets that are not instrumental to company operations SA;
i is the normal rate of return on risk capital invested, by sector of origin (Cost of
Equity, Ke);
i' is the financial discount rate (equal to the return on risk-free assets, rf).
Marco Vulpiani. For information contact: mvulpiani@deloitte.it
Contents
1. The determination of Goodwill
2. Mixed method formula
3. Input of Mixed method
4. Unlevered Mixed method
10
11
In the measurement of the Book Value any distribution of dividends that have
already been approved or are in the process of being approved has to be
taken into account.
12
It assumes that the conditions generating a greater than normal income cannot
last over the long term and are therefore destined to cancel themselves out or to
fade over the course of a few years.
The prudential nature thereof is clear and should lead to a default valuation of
goodwill.
According to the most widespread practice and doctrine(*) n could vary
between 3 and 10 years.
(*) Guatri L. and Bini M., 2005; Zanda G. et al., 2001
Marco Vulpiani. For information contact: mvulpiani@deloitte.it
13
i'
14
Contents
1. The determination of Goodwill
2. Mixed method formula
3. Input of Mixed method
4. Unlevered Mixed method
15
Enterprise
Value
Goodwill
EV
NIC
Net Invested
Capital
The Mixed Method can be applied also with an asset side approach:
Unlevered Mixed Method(*)
(*) L. Guatri, M.Bini, "Nuovo trattato sulla Valutazione delle aziende", 2005
Marco Vulpiani. For information contact: mvulpiani@deloitte.it
16
EV = C' + an i (N iC') + SA
EV = Enterprise Value
C'
C' is equal to the adjusted Net Invested Capital C, with assets and working
capital expressed at current value, without considering the value of the assets
that are not instrumental to company operations SA;
i is the normal rate of return on risk and debt capital invested, by sector of
origin (WACC);
i' is the financial discount rate equal to the return on risk-free assets.
Marco Vulpiani. For information contact: mvulpiani@deloitte.it
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