Business Valuations: Cost Approach

Author: Robert K Minniti

This course is designed to be an introductory course on cost approach used in business valuations and business calculations. Participants will be exposed to various cost approach valuation methodologies. We will discuss why the cost approach is used, and when it is appropriate. We will also discuss the importance of maintaining professional standards so that the valuation opinion can be presented in a court of law. We will review the NACVA and AICPA standards.

Note: This course is designed to be a prerequisite for intermediate and advanced business valuation courses to be offered in 2023.

Publication Date: February 2022

Designed For
This course is appropriate for anyone who is interested in business valuations.

Topics Covered

• Business Sales vs Asset Sales
• Valuing a Business
• Valuation Engagements
• Planning the Engagement
• Standards of Value
• Premise of Value
• Common Valuation Approaches
• Asset Approach
• Asset Based Approaches
• Financials - GAAP vs Valuation
• Historical Cost Example
• Steps in Applying an Asset Approach
• Cost Based Approaches
• Analysis
• Types of Depreciation
• Types of Costs
• Direct Product Costs
• Indirect Product Costs
• Building Cost Methodologies
• Capitalized Excess Earnings Method
• Revenue Ruling 65-193
• Asset Accumulation Method
• Current Issues
• Premiums and Discounts
• Conclusion of Value

Learning Objectives

• Identify the reasons for performing a valuation engagement using the cost or asset approach
• Identify basic cost and asset approach methodologies
• Recognize discounts that can be applied in a business valuation
• Identify a premise of value
• Recognize the best way to figure the valuation of an ownership interest in a public company
• Identify the methodology developed by the US Treasury Department
• Identify the most accurate building cost methodology

Level
Basic

Instructional Method
Self-Study

NASBA Field of Study
Auditing (2 hours)

Program Prerequisites
None

Advance Preparation
None