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Article: Correct fair market value calculation needed to avoid regulatory challenges.
- Article from:
- Healthcare Financial Management
- Article date:
- September 1, 1997
- Author:
CopyrightCOPYRIGHT 1997 Healthcare Financial Management Association. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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In valuing a physician practice for acquisition, it is important for buyers and sellers to distinguish between fair market value and strategic value. Although many buyers would willingly pay for the strategic value of a practice, tax-exempt buyers are required by law to consider only the fair market value in setting a bid price. Valuators must adjust group earnings to exclude items that do not apply to any willing seller and include items that do apply to any willing seller to arrive at the fair market value of the practice.
In addition, the weighted average cost of capital (WACC), which becomes the discount rate in the valuation model, is critical to the measure of ...