Construction Company Valuation Primer

3 JOURNAL OF Construction ACCOUNTING AND TAXATION May/June 2001 What is the fair marketvalue of a constructioncompany in today s mar-ket? The obvious answeris: whatever can beobtained upon sale. However, short ofputting the Company up for sale, there aremethods and techniques to assist anowner in determining a fair market purpose of this article is to providea basic Primer in Construction companyvaluation OF FAIRMARKET VALUEFair market value is defined in IRSR evenue Ruling 59-60 as follows:the price at which property wouldchange hands between a willingbuyer and a willing seller when theformer is not under any compulsionto buy and the latter is not under anycompulsion to sell, both parties hav-ing reasonable knowledge of value of an item tends to be deter-mined by the cost of acquiring an equallydesirable item. A business acquisition isan investment and should be judged assuch. The opportunity cost, or what youcould buy for the money, is what deter-mines VERSUSAPPRAISALT here is a difference between a valuationand an appraisal.

estate planning, ESOPS, purchase price allocations, litigation, and financing assis-tance. The purpose for which a company is valued can affect the final outcome. For instance, an estate tax valuation will often be different from the value derived for an active sale of a thriving business. IMPACT OF MERGERS AND ACQUISITIONS ON VALUE

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