The Market's Role in Determining the Value of Your Privately Held Business
RS Revenue Ruling 59-60 emphasizes that an appraiser must consider a company's earning and dividend-paying capacity. The income method values a company by capitalizing past profits or discounting future cash flows based on the cost of capital, which is heavily influenced by interest rates. Higher interest rates increase key components of the cost of capital, such as the risk-free rate (mirroring returns on government bonds) and the risk premium (reflecting higher returns demanded for riskier private investments). Additionally, rising interest rates increase borrowing costs, impacting companies reliant on debt and potentially reducing profits, especially in sectors like construction where demand for new projects may decline during high-rate periods.
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17-Oct-2024 07:28 pm
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