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The purpose of this paper is to provide a practitioners’ perspective on the valuation models used for valuing hotel property and the challenges posed by traditional valuation models in their application and use. Set in the context of the Indian hospitality industry, the paper brings out the paradigm shifts that have taken place in recent years in the context of valuations. The paper also attempts to provide resolution to the issues and challenges raised.

This study assimilates data from senior finance professionals and by using semi-structured interviews, draws on a wide spectrum of hotels in India.

The findings suggest that the earnings-based models are largely followed in valuing hotel property in India. The major challenges encountered in the valuation process as highlighted by the respondents are related to (a) the growing uncertainty associated with projections of future earnings given the plethora of assumptions made at a micro and macro level, and (b) determination of an appropriate discounting factor for computing the present value of future cash flows.

This paper generates useful qualitative information on existing practices in valuation in the Indian hospitality sector. The findings will be useful for hoteliers, policymakers and researchers in bringing forth the valuation challenges faced in the context of a developing economy and its characteristic institutional weaknesses. The findings of this paper may be furthered through appropriate and detailed quantitative analysis of primary and secondary data on the issues and challenges raised here.

This paper makes a sincere attempt to highlight the real challenges faced in valuing hotel properties and as such adds value to the existing literature.

The primary purpose of this paper is to develop the translation formula between the required return on unlevered and levered equity for the specific case where cash flows have a finite lifetime and the flow to debt is prespecified. The secondary purpose of this paper is to underpin the importance of the type of stochasticity of cash flows for translation formulas. A general derivation of such formulas and the discount rate in the free cash flow approach is shown.

The paper starts with the same assumptions that have been applied by Modigliani and Miller (1963), Miles and Ezzell (1980) and other researchers. Then the paper develops the mathematical foundations to apply a deterministic backward-iterative scheme for valuing cash flows. After stating the valuation formulas for levered and unlevered equity, debt and tax shields, the authors mathematically derive the relationship between the unlevered return and levered return on equity.

Conventional translation formulas apply to very special cases. They can generally not be used for projects with nonconstant leverage and a finite lifetime. In general, translation formulas depend on continuing values, cash flows, leverage, taxation, risk-free rate, etc. In this paper, the translation depends on the structure of the debt in addition to the well-known parameters in conventional formulas. This paper formula contains the Modigliani-Miller translation formula as a special case.

The authors develop a novel formula for the translation of the required return on unlevered to levered equity. With this formula, the authors offer a solution for the consistent valuation of cash flows with a limited lifetime and given debt financing.

Increased economic activity in sub-Saharan Africa (SSA) has given rise to increased demand for port development. Given the often scarce availability of national public funding, port institutional reform programmes have been implemented to pave the way for the inclusion of external port investors. Notwithstanding this fact, some sub-Saharan African Governments remain institutionally locked into the notion that state-owned enterprises remain an appropriate vehicle for port terminal operations. This, despite the fact that terminal operational concessions globally and within the continent of Africa are increasingly being managed by global terminal operators. Given this context, this study aims to evaluate different port valuation and funding strategies. Two research questions form the core of this research: what is the financial value of a concession? What is the most cost advantageous funding strategy? The methodology is applied to the development of a two-berth container terminal in SSA.

After reviewing a range of financial valuation and funding techniques, the study presents valuation and funding model applicability-fit tests. Thereafter, a suitable valuation technique is selected and applied to the case study providing a concession valuation. Different funding strategies are applied to the valuation model to determine the cost implications of each funding instrument given the local context and institutional constraints applicable to SSA. Finally, the study discusses the significance of the results to potential SSA port investors by highlighting the impact of each funding approach on key financial metrics.

The study presents a range of financial investment appraisal results for the case study concession in consideration of four specific funding strategies. The highest concession valuation could be attributed to a higher debt ratio as a principal funding strategy. In addition, this funding approach (100% debt) realised the shortest payback period and the highest internal rate of return values. The authors, however, maintain that the optimal funding strategy for a concession depends ultimately on the financial goals of the investor.

This research makes a contribution to the existing literature on port finance and development by presenting a structured approach to the evaluation of the valuation and funding techniques, which can be used in terminal development subject to the specific local context and institutional constraints (in this case applicable to SSA). The study provides practical insight into the potential cost of the considered terminal concession for private or public sector participants and a view of the most cost advantageous funding strategy available for interested investors.

The paper aims to investigate the views of Estonian private equity and venture capitalists about the valuation of high‐growth companies and compare these with theoretical recommendations found in corporate finance and venture capital literature.

The analysis was carried out by using the case study methodology. Structured interviews were conducted in order to present the material for analysis. The dominant model of the case study analysis is exploratory, using an explanation‐building and pattern‐matching technique.

Main findings of the empirical study show that Estonian private equity and venture capitalists make the valuation somewhat differently compared to Western European and American ones. Some findings do not confirm the suggestions made by scientists.

Some of the required data were considered to be a business secret. The research could be extended to a broader sample.

The findings can be used by the managers of private equity and venture capital funds for choosing appropriate cost of capital and valuation model for venture capital projects.

The paper is the first empirical paper, investigating how Estonian private equity and venture capitalists make the valuation of target companies.

The value of land for development is normally estimated by the use of the comparative method or the residual approach. The aim of the paper is to examine appraisal practice, in particular the bases of valuation, availability and utilisation of data, reporting of the value figure and the management of risk.

The paper reports the findings of a survey of valuers from leading practices throughout the UK, bank lenders and developers. An example of an appraisal of an urban regeneration site is included in order to highlight the key issues within the discussion.

A variety of reporting practices is found from a tightly drawn range of values to single‐point estimates along with a detailed explanation of the assumptions employed. Developers and lenders favoured the latter, but they appeared to be open‐minded about a range of values or an expression of uncertainty being reported, provided that there is a clear and well supported justification. Risk management approaches are underdeveloped within the profession.

The valuation of urban regeneration land is said to be one of the most vexed issues in the appraisal of projects due to a lack of data transparency in urban regeneration markets, shortcomings in traditional appraisal methodologies and complexities of public sector grant procedures.

This article reviews the way in which the law in England and Wales considers the valuation of companies, and argues that the issues arising from this legal perspective are indicative of a gap between the economic theory and practice of company valuation. Furthermore, an analysis of the relevant case law reveals several interesting practical difficulties which may suggest a role for theoretical analysis. Equally, a lack of awareness of the economic theory of valuation is revealed on the part of the courts. It is argued that this lack of awareness may have implications for the practices of valuation by professional accounting firms that are currently observed in the UK. An examination of the theory of company valuation shows that there is widespread agreement on the basic principle of the approach to be followed in valuing the shares in a company; in short, it is the present value of the company's future cash flows. Although there is debate over issues such as the appropriate model to be used in pricing risk, and how to allow for the impact of taxation in arriving at the discount rate, this principle appears to be universally accepted. Although some investigations have been carried out into the practical context of company valuation in the UK (Arnold and Moizer 1984, Moizer and Arnold 1984, Day 1986, and Keane 1992), no attention has been paid in the economics and accounting literature to the legal context. This is perhaps surprising given that the courts are sometimes important users of company valuation reports. This article reviews the way in which the law in England and Wales considers the valuation of companies, and argues that the issues arising from this legal perspective are indicative of a gap between the economic theory and practice of company valuation. Furthermore, an analysis of the relevant case law reveals several interesting practical difficulties which may suggest a role for theoretical analysis. Equally, a lack of awareness of the economic theory of valuation is revealed on the part of the courts. Historically, one of the features of the English commercial courts has been their refusal to become involved in matters of commercial judgement. English judges have held themselves to be sophisticated technicians in law but self‐professed amateurs in commercial matters. Their role has been to hear expert witnesses and to weigh up their professional advice. This contrasts with the position in continental courts; for example in France, the judges sitting at first instance in the lower commercial courts are businessmen and women rather than lawyers, with the result that their approach and findings are likely to be less legalistic and more commercial. This English legal approach needs to be seen in the context of an increasing concern with valuation attributable to the changes brought about by Sections 459 to 461 of the Companies Act 1985, together with the recent case law. Section 459 of the Act is concerned with minority unfair prejudice actions and under that section a member may petition the court for an order on the grounds that the petitioner's interests have been, are being or will be unfairly prejudiced by the conduct of the company's affairs. A considerable body of case law has built up on what constitutes unfairly prejudicial conduct. Under section 461 the court may make such order as it thinks fit for giving relief including the purchase of the shares of any member of the company by other members or by the company itself. Here the crucial question for the courts and for the parties negotiating a buy‐out in the shadow of the courts is the amount of the valuation and the factor to be taken into account in reaching that valuation. In such circumstances, it might be expected that there would be considerable concern with the basis of the valuation. However, ‘basis’ can have several different meanings; in the first place, it could be defined as asset basis, in the sense that a valuation may be concerned with the replacement, ‘going concern’ or realisable value of the firm's assets. Second, there is a need to define what economic model has been used to derive the ‘going concern’ or economic value; it may be helpful to describe this as the economic model basis of the valuation. Third, there is the question as to whether the proportion of the equity held affects the value; this might be termed the control basis. As we show below, the concern of the theoretical literature is primarily with the second category, whereas the case law tends to concern itself with the first and third categories. In order to clarify the theoretical and practical considerations involved, the first section of this paper briefly reviews the theory of equity valuation and the second contrasts this with the rather limited evidence on UK valuation practice. In the third section, the legal issues involved are explained and the way in which the courts proceed in cases which involve the valuation of shares are reviewed. Although the courts rely on expert evidence in making a valuation, certain principles and guidelines for valuation are laid down by the courts, and these are analysed and contrasted with the prescriptions on valuation found in the finance literature.

Develops an approach to estimating effective rents based on the assumption that the net present value of incentives should be zero. Investors should not be able to profit from lease incentive packages if they are valued correctly because they should have no influence on capital values. If ad hoc methods of valuation are used in practice then there may be opportunities to identify mispriced properties. Presents a model which recognizes that different aspects of the cashflows can carry different risk and should be valued accordingly. Suggests that although the resulting model is more complex than generally found in practice it can nevertheless easily be solved with a spreadsheet. Develops the economic and financial principles involved rather than focusing on rule of thumb procedures.

In the next five years, there will be a shortage of divestiture candidates qualified for leveraged buyouts relative to the number of interested buyers and the available supply of financing. Corporations will, therefore, be well positioned to negotiate favorable terms of sale for qualified divesture candidates using this technique.

This paper aims to provide upper‐level accounting and/or finance students with a review of the intricacies of option pricing, discounted cash flow (DCF) capital budgeting decision models, various types of real options, how risk analysis of long‐term capital investments can be facilitated by explicit consideration of real options, and the role of sensitivity analysis in the analysis of capital investment projects with real options.

The paper describes a fictional company facing a risky capital investment proposal. Students evaluate the investment proposal using traditional DCF analysis (i.e. the net present value method), and then re‐run the analysis by incorporating the existence of real options into the analysis of the proposed investment. Finally, students see the value of using Crystal Ball software for conducting sensitivity analysis as part of the decision‐making process.

There are two primary conceptual lessons that students realize by completing this educational case: real‐options analysis is a conceptually correct and robust way to explicitly deal with project uncertainty, and failure to explicitly consider real options in the analysis of capital investment projects may result in suboptimal decision making.

This case covers all major real‐option topics required for the certified management accountant exam. Further, the case fills a void in the literature of accounting education as this literature pertains to the availability of case material regarding the use of real options as an extension to conventional capital budgeting techniques.