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Are a Debtor’s Trading Prices Reliable Evidence of Its Enterprise Value?
Are a Debtor’s Trading Prices Reliable Evidence of Its Enterprise Value?
First published by ABI Journal, September 2011
By Duston K. McFaul and Kirk S. Cheney
Valuation disputes can be among the most critical issues addressed during the course of a bankruptcy case, at least in terms of economic impact to various bankruptcy participants. They arise in several contexts, including plan confirmation, adequate protection requests, avoidance actions, and the appointment of equity committees. Courts have generally recognized three accepted methodologies for valuing a debtor company: (1) the “discounted cash flow” (DCF) approach, which values a company based on the present value of projected future cash flows; (2) the “comparable company” approach, which values a company by reference to the trading prices of similar public companies; and (3) the “comparable transactions” approach, which values a company by reference to recent mergers and acquisitions involving similar companies. Read the entire article here.
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