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The business appraisal process involves a great deal of science in arriving at an indication of value, but also requires some art on the part of the appraiser. The science of business appraisals involves the approaches and methodologies used in arriving at a value conclusion. The market approach using the direct market data method requires statistics from actual transactions in the market in order to apply an appropriate multiple to the subject company’s selected earnings, revenues, or other income stream. The single period capitalization method and the multi-period discounted earnings method under the income approach require calculated inputs for the appropriate earnings. In addition, data directly observed in the market place such as the risk free rate and the equity risk premium (obtained from Ibbotson Associates) are required to build up the company’s appropriate cost of equity and discount rate. Continue reading