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A CRITICAL EXAMINATION OF METHODS OF EVALUATING CLOSELY HELD BUSINESSES Khursheed Omer and Darshan L. Wadhwa, University of Houston Downtown ABSTRACT This paper critically examines methods of evaluating closely held businesses from the standpoint of theoretical soundness. The paper describes various methods of valuation under the asset-based and income-based approaches and theoretically evaluates each approach. INTRODUCTION The purpose of this paper is to critically examine commonly used methods of evaluating closely held businesses under the asset-based and income-based approaches. The discussion is aimed at both owners of closely held businesses and accounting professionals providing services to the owners. Such an understanding on the part of the owners is important because they need to judge the propriety of the services rendered by accountants. Professional accountants may find this discussion useful because the discussion in this paper goes beyond prescriptive professional guidelines. The paper provides a theoretical basis to help identify the circumstances under which a particular evaluation procedure might be suitable. Valuation plays a central role in the decision to acquire assets. The person purchasing a business has to arrive at the fair market value of the business assets. At the same time, the person selling the business has to determine a reasonable value for the assets being sold before deciding to accept or reject an offer. An important problem encountered in the course of valuing assets is the bias of both the buyer and the seller [Damodaran, 1996]. Valuation of a closely held business firm is difficult because the stock of such businesses is not traded in the open market [Pinches, 1994]. Hence, an objective basis of evaluation is not available. A number of professional guidelines developed over the years by various authoritative bodies are available to professionals to assist them in the task of valuing closely held businesses. The following section presents background literature and a brief summary of professional guidelines. BACKGROUND LITERATURE Professional guidelines for valuing closely held corporations were initially issued by the Internal Revenue Service (IRS) in Revenue Ruling 59-60 [1959]. IRS later published a valuation guide [IRS, 1985] elaborating valuation procedures and requiring that information about the economy, the industry, and the firm be utilized in the process of evaluation. The American Society of Appraisers established the Appraisal Standards Board (ASB) in 1989 that regularly publishes Uniform Standards of Professional Practice (USPAP). Standards 9 and 10 of USPAP prescribe the steps for evaluation of businesses [ASA, 1995]. In addition, the Institute of Business Appraisers (IBA) which is a credential granting professional body has issued its own set of business appraisal standards. Even though CPAs are not required to follow these guidelines, they are expected to possess a thorough knowledge of the principles underlying business valuation under Rule 201 of the CPC. They are also expected to comply with the requirements of Rule 202 of the Code of Professional Conduct [AICPA, 1995] and Statement on Standards of Consulting Services No. 1 [AICPA, 1991]. A number of articles in accounting and finance literature address the procedural and legal aspects of business evaluation. These

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articles, however, do not discuss the valuation issue in the context of accounting theory. For example, Phelps [1995] cites a court case involving the transfer of shares of stock in a closely held corporation where the Tax Court agreed with the IRS expert as opposed to the accountant engaged by the donor. Lippit and Mastracchio [1995] describe the procedure of arriving at an appropriate capitalization rate under the earning capitalization and excess earnings models. August [1995] discusses strategies that may be used to achieve valuation discounts for transfers of interests in family enterprises. Ledereich & Siegel [1990] summarized and presented examples of the procedures available to the accountant for valuing a business. LeClair [1990] did test the validity of different valuation procedures. He relied on efficient market hypothesis and utilized a sample of firms drawn from the Compustat tape to statistically test valuation models based upon adjusted book value and capitalization of earnings. The results of his study were based on data of public corporations included in the Compustat tapes. The results of this study are, therefore, not be applicable to the valuation of closely held businesses. In the following sections of the paper, we discuss three common methods of valuation and identify situations where a particular method will be suitable for the valuation of closely held businesses. ASSET-BASED APPROACH The asset-based approach involves business appraisal on the basis of the total asset value of the business. Since assets represent resources of a business enterprise that contribute (directly or indirectly) to operational and financial viability of a business, appraisal of an entity's assets ought to yield a proper valuation of the business entity. The methods under asset-based valuation approach may be specially useful in the following situations: i) a relatively new business, ii) a business whose earnings have been unstable, iii) a business whose sole owner is disabled or has died, and iv) a business for which an earnings-based valuation approach is highly speculative [Blackman, 1986]. Several procedures are available under the asset-based approach and the particular method used for determination of value depends on the purpose of appraisal. Book Value Method - The book value of an asset represents the difference between the cost of acquiring a capital asset and the amount of depreciation taken on it. Accounting depreciation taken is merely an estimate of the portion of cost of the asset that is deemed to have been utilized. Depreciation allowable under the tax code, on the other hand, is an arbitrary amount allowed to promote the economic policies pursued by the government at a particular time. Therefore, book value of an asset, whether determined using accounting deprecation or using tax depreciation, is usually not an adequate proxy representing the underlying net value of the assets for valuation purposes. The only possible advantage of the book value figure is that it is available for most businesses and that it is arrived at by some more or less common rule, such as generally accepted accounting principles (GAAP) [Pratt, 1981]. In case of a closely held business, however, it is not certain that the firm has adhered to GAAP in the preparation of financial statements. Furthermore, GAAP themselves are not free from serious deficiencies. Deficiencies in accounting procedures under GAAP include the following: 1. Under GAAP, most assets are reported at cost. This means that asset values are understated not only during inflationary periods but also during normal periods because of such factors as obsolescence, increase in demand, and supply shortages. 2. Valuation accounts under GAAP (for example, depreciation) are arbitrary reductions in cost of assets arrived at by using a variety of methods. None of these methods are specifically designed to reflect

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value. 3. GAAP permit a wide variety of methods. Consequently, comparisons with other similarly situated companies may not be always possible [Desmond and Kelley, 1980]. Valuation of a business in the absence of such comparison may not be very meaningful and reliable. The rationale for the book value method rests on the argument that a business is worth its accumulated retained earnings. In a number of court cases, the IRS contended that the fair market value of the company's stock is its approximate book value. However, the court in many such cases rejected this contention [Blackman, 1986]. In the case of investment and real estate holding companies, the underlying value of assets does closely approximate the worth of a business [Blackman, 1986]. Even when such is the case, adjustments to the book value of assets are generally needed to arrive at a proper valuation amount. The nature and extent of such adjustments depend upon the purpose of valuation and availability of reliable data [Pratt, 1981]. Adjustments to book value yield the market value, the reproduction value, the liquidation value, and the fair market value of the business. Market Value Method - Market value of an asset refers to the value of an asset in a going concern. Another familiar term for this value is the replacement cost (in use). The underlying concept is that an asset in use has greater market value than the one that is sold separately. This value is generally determined by researching the cost of purchasing a like-kind asset with similar age, condition, usage, and the associated cost of delivery and installation. It may be extremely difficult to find an asset that meets the replacement cost (in use) criterion. An alternative approach is to deduct from the cost of a new asset appropriate amount of depreciation to reflect wear and tear and obsolescence. This requires the appraiser to judge the adequacy of the deprecation schedule as it stands alone and in relation to other similar firms, if such data is available [Blackman, 1986]. The adjusted book value is usually greater than the liquidation value but less than the market value. The problem with this approach is that the acquisition cost in many cases may be chronologically far removed from the time of market valuation resulting in extremely large divergence between the two values. A concept related to the market value concept is that of going-concern value that refers to the total value of an entity with its doors open and without any threat of discontinuance. Going-concern value usually refers to the total value of an entity as a going-concern. However, in some court cases involving disputed purchase price allocations, the term has also been interpreted to mean a class of intangible assets. These alternatives may sometimes also prove to be quite difficult due to problems in judging the amount of wear and tear and obsolescence or to determine the value of a going concern as a whole [Pratt, 1981]. The market value method and other alternatives discussed in this section may have a theoretical appeal for valuing an entity when the purpose of the valuation is to determine a proper acquisition price for the business. In spite of the logical appeal of these methods, the difficulties associated with these alternatives make the use of this method less likely for valuing closely held businesses. Reproduction Value Method - The reproduction value of an asset is the same as replacement cost (new). This value is easier to determine compared to the market value. Replacement value is useful when insurance companies have to replace assets [Blackman, 1986]. For other valuation purposes, such as divorce settlements, business mergers and acquisitions, buy-back agreements, and conversion of a

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closely held business to a public corporation, the reproduction value has little relevance. Liquidation Value Method - Liquidation value is the estimated proceeds from the sale of an asset or group of assets after deducting any liabilities and other costs associated with liquidation. In estimating the proceeds, the appraiser considers the lowest amount at which the asset can be sold in the market. The liquidation of a business may be an orderly liquidation or a forced liquidation. Orderly liquidation refers to a situation when assets are sold after proper advertisement in the ordinary course of business. Forced liquidation, on the other hand, involves a situation when assets have to be sold because of hardship [Miles, 1984]. The liquidation value approach may also used in situations where actual liquidation of the business is not imminent. Fair Market Value Method - Fair market value is a valuation concept that is frequently used in legal situations involving disputes about valuation of property. Such disputes are common in the levying of estate, gift, inheritance, ad-valorem, and income taxes. Fair market value for the purposes of estate and gift taxes is defined as follows: The price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is under no compulsion to sell, both parties having reasonable knowledge of relevant facts. This definition of fair market value is also accepted in federal taxation. Furthermore, the courts in adjudicating disputes about valuation have used this definition of fair market value. The problem with fair market value is that it presumes a hypothetical buyer and a hypothetical seller. It is very difficult to guess the price two parties would have arrived at in a real transaction. The difficulty is even greater when the valuation of an entire closely held business (or a major portion of the business) is involved. In a real situation, such transactions entail a fairly elaborate bargaining process (Blackman, 1986 p. 30). Market Comparison Method - In the market comparison method, the property of the business to be valued is compared to similar properties owned by other businesses. The rationale for using this method is based on the argument that the sales prices of the stocks in publicly traded companies within an industry can generally be related to the stock of closely-held corporations. The market comparison method involves a search of the public market for firms that are comparable to the business under valuation in terms of size, line of business, record of performance and capitalization structure. After such publicly held businesses are identified, the price/earnings ratio (P/E) or price/book value ratio (P/BV) is determined and used to determine the value of the subject firm. The IRS strongly favors the utilization of the market comparison approach in the valuation of businesses. In Revenue Ruling 59-60, the IRS states: When a stock closely held, is traded infrequently, or is traded in an erratic market, some other measure of value must be used. In many instances, the next best measure may be found in the prices at which the stock of companies engaged in the same or a similar line of business are selling in a free and open market. In accordance with section 2031(b) of the code stocks listed on an exchange are to be considered first. However, if sufficient comparable companies whose stocks are listed on exchange cannot be found, other comparable companies which have stock actively traded in the over-the-counter market also may be used. The essential factor is that whether stocks are sold on and exchange or overthe-counter there is evidence of an active, free public market for the stock as of the

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valuation date. However, the position of the courts in this respect has not been clear cut. In Tallichet v Commissioner, the court endorsed the position of the IRS. In Central Trust Company v US, the court rejected the bottom-line valuation figures arrived at by both the estate's expert and the IRS, but accepted market comparison as a valid approach to business valuation. A number of courts have disallowed the use of comparable companies for valuation of a business. For example, in Bader v US, the court rejected the valuation based on comparable method on the grounds that there were no publicly traded corporations in the same line of business. In Worthen v US, the basis of comparison was questioned by the court because the company used as a comparable was not engaged in the same line of business and had sales four times that of the closely-held business. In Estate of Thompkins v. Commissioner, the court rejected the use of a comparable business because it had different kinds of assets and was located in a different geographical region. The smaller the closely held business, the more difficult it is to find a comparable public company. Another difficulty in using this method is the wide fluctuation in the prices of the stock of the publicly held company. A further complication arises when companies widely differing in the adjusted book values of assets report nearly the same absolute amount of profits. This may happen either due to differences in profitability or due to following different accounting procedures allowed under GAAP. For example, many items that a large public company would capitalize might be treated as an expense by the closely held company. Furthermore, closely held companies often pay large salaries and may not have access to large credit lines available to public corporations. Finally, buyers and sellers are not likely to use comparable business entities to negotiate the price at which the closely held business will be bought or sold (Blackman, 1986 pp.75-82). In Accounting Release No. 113, the Securities and Exchange Commission (SEC) took note of the fact that the discount for lack of marketability may be quite substantial in the case of securities whose sale is restricted under SEC rules (SEC, 1977 pp. 62, 85). The courts have, therefore, allowed discount for lack of general marketability and other restrictive features associated with the stock of the closely held corporation. For example, in Estate of Arthur F. Little Jr., the court allowed a 35 percent discount due to restrictions on the sale of the stock, 15 percent discount for an irrevocable proxy agreement, and an additional 10 percent discount for shares held in escrow. Similarly, the court allowed a 35 percent discount for lack of marketability, a 17 percent discount for unattractive investment portfolios, and a 12 percent discount for registration costs in William T. Piper, Sr. Est. The position of the IRS with respect to allowing discounts is laid out in sections 6.02 - 6.04 of Revenue Ruling 77-287. While the IRS recognizes the need for allowing discount for lack of marketability, it urges caution in arriving at the size of discount. The IRS maintains that the discount for lack of marketability is only one of the many factors to be considered in valuing the business. INCOME-BASED APPROACH Under the asset-based valuation approach, the value of assets is carefully determined so as to reflect the earning potential of a business. Under the income-based approach, on the other hand, the value of business assets is inferred from future income. First, future income for a business is carefully estimated. Then a relationship between the future income and the assets owned by the business is established. Finally, the estimate of future income is converted to an estimate of value (Miles, 1984 p. 211). Thus, assets are considered in the valuation of a business, in terms of their income-producing potential rather than their acquisition or disposal value. Because of its emphasis on income generation, this approach has

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wide acceptance in the valuation of going concerns for potential investors (Blackman, 1986 p.70). Besides reflecting the investment value of a business, future earnings of a business are important in determining the intrinsic value of a business (Pratt, 1981 pp. 26-27). There are different ways in which income can be estimated and related to the assets of a business. For this reason, income-based approaches can yield widely divergent results. Selection of a particular method depends on the purpose of valuation and the type of entity being valued. Under income-based approaches, therefore, it is important to specify the procedures used to arrive at the earnings figure and the multiple that defines the relationship between potential earnings and required investment. Weighted Average of Normal Earnings Method - This method involves the following steps: 1. The reported earnings of the business are adjusted by eliminating any expense or revenue items that are judged to be personal in nature and those that are judged to be abnormal by the appraiser (Blackman, 1986, p.70). An average of adjusted earnings over a period of several years is then calculated to represent normal earnings of the business. In selecting the years for the calculation of the average, earnings of the early growth periods are generally ignored. Any one of the following procedures can be used for calculating the estimated future earnings for the business. (i) Determine a simple average of adjusted earnings. (ii) Determine a weighted average of adjusted earnings using 5, 4, and 1 as weight factors. A weight factor of 0 assigned to less likely earnings of early periods. (iii) Determine a weighted average of adjusted earnings using the sum-of-the-years' digit method squared value of weights used in (ii) in order to give greater emphasis to more likely earnings (Pratt, 1981 p. 90). The procedure described in (iii) is preferable because it assigns greater weight to the most recently experienced earnings. Selection of a particular method of assigning weights depends upon the appraiser's assessment of risk associated with change in management and other risk factors. The weighted average of normal earnings represents future normal earnings and is calculated as follows: (formula omitted due to technical difficulties) 2. A composite earnings multiplier is then calculated based upon the weighted average of multipliers assigned to a group of ten factors reflecting investment considerations. These factors in order of priority are: i) historical profits; ii) income risk; iii) terms of sale; iv) business type; v) business growth; vi) location and facilities; vii) marketability; viii) desirability; ix) competition; and x) industry growth. The multiplier ranges between Zero and 3 and the appraiser/accountant arrives at his/her determination of multiplier value for each factor after carefully studying the economic and business outlook for the business. Multipliers in the zero to 1.0 range reflect either high risk or irrelevance of the factor to the value of a business. Multipliers in the range of 1.5 to 2.0 are selected for factors judged to be normal for the business under consideration. Multipliers in the upper range of 2.0 to 3.0 (representing a capitalization rate of 33 1/3 to 50 percent) are assigned to desirable business opportunities. This limit is based upon the reasoning that a good business investment must be able to generate sufficient earnings and should be able to repay the required investment within a reasonable period of time while providing a reasonable compensation to the owner/manager.

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3. After a multiplier is selected for all the factors, a weight is assigned to each of the factors enumerated earlier. This is done to reflect its relative importance (as perceived by the evaluator) of the factor in the valuation process. The weighted average of all multipliers is calculated as follows: (formula omitted due to technical difficulties) 4. The value of the business assets is obtained by multiplying the estimated future earnings determined in step one by the weighted average of all multipliers determined in step 2, i.e.: (?) x () Capitalization of Earnings Method - The capitalization of earnings method is perhaps the most popular among the valuation methods based upon earnings of a business (Pratt, 1981 p.19). Capitalization of earnings requires an income figure that reflects (i) the future expected earning of a company that will continue in perpetuity and (ii) a figure for the appropriate rate of return to help arrive at the amount that the potential investor would be willing to invest. Net operating income is the most common type of income that is capitalized to arrive at the valuation of a business. Some times, however, other types of income, such as gross profit or cash flow (income) may also be used. The importance of selecting an appropriate time period and applying proper adjustments to the reported earnings for a reasonable estimate of future income is underscored in Revenue Ruling 68-609: The past earnings .... should fairly reflect the probable future earnings. Ordinarily, the period should not be less than five years, and abnormal years, whether above or below the average, should be eliminated. If the business is a sole proprietorship or partnership, there should be deducted from the earnings of the business a reasonable amount for services performed by the owner or partners engaged in the business. After eliminating abnormal items and after taking into consideration reasonable compensation to owners, several other adjustments are made to insure that the income figure utilized reflects the future income potential of the business. Some important adjustments to be made to historical income are discussed below: The amount of depreciation charged on the assets needs to be carefully considered. If the assets owned by the business were purchased some time ago, traditional depreciation methods might yield an overstated income figure. On the other hand, businesses might use the maximum amount of depreciation allowable under applicable IRS guidelines (for example, ACRS or MACRS) in which case the income figure might be understated. The appraiser has to make some judgment as to the appropriateness of the depreciation schedule as it stands alone and in relation other comparable businesses. Bad debt expense actually represents an estimate of future write-offs. The accuracy of these estimates, therefore, needs to be assessed by comparing historical percentages of bad debt losses from past credit sales with the percentage of current credit sales being charged to bad debt expense. The appraiser should also check to see whether any notes or other receivable are questionable. For example, the business may have asked a delinquent open account customer to sign a note to improve the chances to collect the amount due, but the prospect of collecting the account may still be doubtful. Notes receivable from the owners/stockholders may really be a long-term loan or even undeclared dividends. In all such cases, the appraiser must make appropriate adjustments in the income statement and balance sheet. Since LIFO procedure for valuing inventories is acceptable for tax purposes, many companies use LIFO. If withdrawals from inventory exceed purchases during the course of a year, proper procedures to account for LIFO liquidation should be followed to reflect the income effect of such liquidation.

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If a comparison with other comparable companies is necessary, all of the companies' earnings and asset values need to be stated on the same basis. If the companies do not use the same accounting methods, it is necessary to adjust the earnings and asset values to the same basis. For most companies that use FIFO, information needed to adjust to LIFO basis is not readily available. If the financial statements of the business being valued have been audited, such information will be available in the notes to financial statements. In case of unaudited statements, the appraiser has to obtain the information from the accountant working for the business. The appraiser should also remember that the adjustment from FIFO to LIFO must be on an after-tax basis. Regardless of the inventory valuation procedure adopted, many companies use the lower-of-cost-ormarket principle. Market value in this instance means current replacement cost within the limits prescribed under GAAP. In spite of general agreement on the definition of market value, there may still be substantial differences in the basis of inventory valuation due to difference in inventory write-down policies. Theoretically, the rate of return on the equity of a business represents the capitalization rate. However, since balance sheets are prepared using the historical cost basis, an independent capitalization rate is developed to arrive at realistic equity value. The capitalization rate is generally built up as the sum of a number of factors reflecting (i) a "safe rate", (ii) a premium for lack of liquidity, and (iii) a premium for the risk of irregular earnings. The safe rate represents the annual rate of return available from investments offering the maximum security and the highest degree of liquidity. Typically the rate of return on government-backed long term securities qualifies as a safe rate. As noted earlier, information on comparable closely held businesses is often unavailable. The rates of return on alternative investment opportunities are, therefore, considered until an appropriate rate of return for the business under consideration is reached. The following alternative investment opportunities may be considered in the following order: (1) Safe rate - rate of return on seven-year treasury notes. (2) Conventional mortgage rates (3) Interest rate on Moody's BAA corporate bonds (4) Bank prime rate (5) Interest rate for financing tangible assets (prime rate plus 2 percent) (6) Credit card rates (7) Aggressive growth mutual funds (8) Venture capital equity funds Typically, most closely held companies that do not have the liquidity and financial resources of publicly traded companies require rates of return equal to or higher than rate of return on high risk securities. Capitalized value of future pretax earnings is obtained by dividing the pretax earnings as calculated before by the selected capitalization rate. Excess Earnings Method - Like the preceding method, this method is also quite popular. Quite often this method is used for valuation of goodwill for businesses. The value of a business under this method is viewed as the market value of its assets that are necessary to conduct business plus a premium for goodwill if the business is specially profitable. The basic steps for valuing a business under this method are: 1. Apply the prime rate to net working capital, the interest rate for financing tangible assets (prime rate + 2%) to plant assets financed by debt and the capitalization rate used in the capitalization of earnings

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method for tangible assets financed by equity. For intangible assets, a rate equivalent to the cost of equity capital may be used. 2. The sum of the required rate of returns is deducted from the future pretax earnings calculated earlier to arrive at excess earnings. 3. The capitalization rate to capitalize excess earnings is determined on the basis of a rate composed of the following components: (i) the safe rate, (ii) a premium for lack of liquidity, (iii) a premium representing risk of change in management, and (iv) a premium for the risk involved in the investment. It is not uncommon for the higher risk public investment to yield rates of return in the range of 30 to 60 percent (for a detailed numerical example of this and other methods discussed in this paper, please see Wadhwa and Omer, 1995). SUMMARY AND CONCLUSION The paper critically examine different approaches to valuing closely held business from the standpoint of theoretical reasoning. The asset-based approach involves appraisal of the resources owned by a business. In general, methods under the asset-based approach are not particularly suited to valuation of closely held businesses because GAAPs do not insure proper valuation of assets and non-GAAP measures of valuing assets of a closely-held businesses are by and large impractical. Asset-based valuation methods are recommended in cases of (i) newly started businesses, (ii) situations where it may not be possible to estimate the earning capacity of a business, and (iii) investment or real estate holding companies where the underlying value of the assets closely approximates the worth of a business. Income-based valuation approach is generally suitable for evaluating a closely held business under a wide variety of circumstances. Since a business derives its value from its earning potential, the incomebased approach presents a direct and logical choice. Thus, instead of inferring the earnings potential of a business from the value of assets, the value of assets is determined on the basis of the earnings potential. Caution needs to be exercised in estimating future earnings potential because different methods under the income-based approach may yield different results. It is, therefore, necessary to specify the procedures used to arrive at the earnings figure and the multiple that is used to define the relationship between potential earnings and the value of the assets. BIBLIOGRAPHY American Institute of Certified Public Accountants (1995). AICPA Professional Standards, AICPA. ___________ (1991). Statement on Standards for Consulting Services, AICPA Appraisal Standards Board (1995). Uniform Standards of Professional Appraisal Practice, ASB. August, J. (1995). Artificial valuation of closely held interests: Section 2704. Estate Planning, 22, 339344. Blackman, I. (1986). The Valuation of Privately Held Businesses - State of the Art Techniques for Buyers, Sellers and Their Advisors, Chicago: Probus Publishing Company. Damodaran, A. (1996). Investment Valuation, New York: John Wiley & Sons. Desmond, G. and R. Kelley (1980). Business Valuation Handbook, Valuation Press.

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Institute of Business Appraisers (1985). Institute of Business Appraisers Business Appraisal Standards, IBA. Internal Revenue Service (1985). Valuation Guide, Commerce Clearing House. LeClair, M. (1990). Valuing the closely held corporation. Accounting Horizons, 4, 31-42. Ledreich, L. and J. Siegel (1990). What is a business worth? National Public Accountant, February, 1822. Lippit, J. and N. Mastracchio Jr., (1995). Developing capitalization rates for valuing a business. CPA Journal, 65, 24-28. Miles, R. (1984). Basic Business Appraisal, New York: John Wiley & Sons. Phelps, M. (1995). Valuation of closely held stock", Tax Advisor, 26, 723. Pinches, G. (1994). Financial Management, Harper Collins College Publishers. Pratt, S. (1981). Valuing A Business: The Analysis of Closely Held Companies, Dow Jones-Irwin. Securities and Exchange Commission (1977). Accounting Series Release No. 113: Statement Regarding Restricted Securities. Commerce Clearing House, Federal Securities Law Report. Swad, R. (1995). Business valuations: Applicable standards for CPAs. CPA Journal, 65, 38-43. Wadhwa, D. and Omer, K. (1995). Rainbow Machine Works, The Journal of Accounting Case Research, 3, 123-135.

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