Copyright (c) 2008 Berkeley Electronic Press All rights reserved. http://www.bepress.com/jbvela Recent documents in Journal of Business Valuation and Economic Loss Analysis en-us Fri, 14 Mar 2008 02:34:13 PDT 3600 http://www.bepress.com/jbvela/vol3/iss1/art4 http://www.bepress.com/jbvela/vol3/iss1/art4 Wed, 12 Mar 2008 17:18:49 PDT Risk, in a financial sense, is defined as variance about some forecasted value. Any time a business appraiser forecasts future cash flows of any sort, these future value estimates are actually means of all likely cash flows in that particular year. The same holds true with discount rate estimates. Several software products allow an analyst to simulate variable future cash flows and/or discount rates but they all require the forecasting of a mean figure, its standard deviation or variance, the shape of its distribution and the correlation coefficients between all variables involved. Usually, accurately estimating most of these data are impossible in a business valuation context. This article presents a simplified method of developing an actual risk measure (standard deviation) that may be used with discounted cash flow valuation models. William C. Weaver Theory and Practice http://www.bepress.com/jbvela/vol3/iss1/art3 http://www.bepress.com/jbvela/vol3/iss1/art3 Wed, 12 Mar 2008 17:17:38 PDT This paper examines a random sample of 100 acquisitions of U.S. target firms acquired between the first quarter of 1999 through the first quarter of 2003 comparing the ``Control Premium" reported by Mergerstat/Shannon Pratt's Control Premium StudyTM to a comparable ``Abnormal Return" calculated using established academic ``event study" methodology. One of the differences between the Mergerstat methodology and the event study methodology is the removal of general market movements from the total stock return to arrive at the abnormal return while no such adjustments are made to the Mergerstat control premium.The ``Control Premium" reported by Mergerstat averaged 49.02% compared to 53.64% calculated using the event study methodology, a difference of -4.62%. During the event periods, the S&P 500 Index experienced a -4.45% average change, accounting for 96% of the difference in average result between the two methods. However, when the sample is split between up and down market periods, anomalies appear.An analysis of the up market periods reveals an average event study abnormal return of 59.97% compared to a 34.95% average Mergerstat Control Premium. This 25% difference is explained by Mergerstat's methodology understating the ``run-up" of target firms' stock prices prior to the acquisition announcement. Dan Jordan Theory and Practice