Valuation for Financial Reporting : Fair Value Measurements and ...

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Case Study 1: Determining Goodwill and Other Intangible Assets 79Fair Value of Software, Rounded $7,120,000SOFTWARE DEVELOPMENT COSTS – ESTIMATED PROJECT TEAMFunctionNumberBurdenedHourly rateProject Manager 1 $200.00Systems Analyst 2 150.00Technical Writer 1 125.00Programmer 4 115.00Support 2 50.00Blended Hourly Rate, Rounded $119.00Footnotes:(1) Lines of code per hour, based on productivity assessment for average module ofprogramming(2) Estimate based on number of lines of redundant/extraneous code, effective age, andremaining economic life of system. Remaining useful life of this asset is four years.Note: Some amounts may not foot due to rounding.# Copyright 2007 by FVG Holdings, LC and Financial Valuation Solutions, LLC. All rights reserved. Used with permission.Sec. 197 is set as of a moment in time (i.e., the acquisition date), the risk of theparticular asset is of no relevance. These practitioners argue that the risk to the entityas a whole of enjoying the amortization benefits, contrasted with the risks of achievingthe cash flows for individual assets is related to overall company risk as represented bythe WACC. A few even argue that the rate should be a risk-free rate, inasmuch as theamortization is regulatory. As of this writing, the latter view is being presented bycertain academics and has not found much traction among practitioners.ASSEMBLED WORKFORCEThe buyer of Target Company obtained an assembled and trained workforce.Considerable expenditures for recruiting, selecting, and training would be requiredto replace these employees with individuals of comparable skills and expertise. Byacquiring fully trained personnel, the buyer avoided the expenditure required to hireand train equivalent personnel. The value of the assembled workforce is representedby the assemblage cost avoided. Therefore, the cost approach is the most appropriatevaluation approach to value this asset. Using this method, the costs associated withemployee recruitment, selection, and training provide the measurement of value.
Exhibit 3.7 Target Company Valuation of Assembled Workforce as of December 31, 2006No. Job Title Salary(1)20%Train. Per.Benefits Total Cl. Yrs.33.3%Cost(2)27.5%Recruit.Interview& H.R. Total1 Member of Technical Staff $90,000 $18,000 $108,000 1 0.125 $4,496 $24,750 $375 $29,6212 Member of Technical Staff 80,250 16,050 96,300 2 0.375 12,025 22,069 750 34,8443 Member of Technical Staff 60,000 12,000 72,000 2 0.375 8,991 16,500 750 26,2414 Member of Technical Staff 44,953 8,991 53,944 1 0.125 2,245 12,362 375 14,9825 Member of Operations Staff 71,641 14,328 85,969 1 0.125 3,578 19,701 375 23,6546 Account Executive 91,170 18,234 109,404 1 0.125 4,554 25,072 375 30,0017 Member of Technical Staff 107,888 21,578 129,466 2 0.375 16,167 29,669 750 46,5868 Member of Technical Staff 33,244 6,649 39,893 1 0.125 1,661 9,142 375 11,1789 Vice President 142,000 28,400 170,400 2 0.375 21,279 39,050 750 61,07910 Member of Technical Staff 83,647 16,729 100,376 2 0.375 12,535 23,003 750 36,28811 Member of Operations Staff 104,700 20,940 125,640 1 0.125 5,230 28,793 375 34,39812 Chief Architect 155,500 31,100 186,600 3 0.750 46,603 42,763 1,500 90,86613 Director of Development 135,000 27,000 162,000 2 0.375 20,230 37,125 750 58,10514 Member of Technical Staff 77,772 15,554 93,326 2 0.375 11,654 21,387 750 33,79115 Account Executive 94,950 18,990 113,940 1 0.125 4,743 26,111 375 31,22916 Member of Technical Staff 81,300 16,260 97,560 1 0.125 4,061 22,358 375 26,79417 Chief Executive Officer 250,000 50,000 300,000 1 0.125 12,488 68,750 375 81,61318 Member Marketing Staff 99,000 19,800 118,800 1 0.125 4,945 27,225 375 32,54519 Member of Technical Staff 82,000 16,400 98,400 2 0.375 12,288 22,550 750 35,58820 Member of Technical Staff 57,460 11,492 68,952 1 0.125 2,870 15,802 375 19,04721 Account Executive 106,400 21,280 127,680 2 0.375 15,944 29,260 750 45,95422 Member of Technical Staff 107,867 21,573 129,440 2 0.375 16,164 29,663 750 46,57723 Member of Technical Staff 110,000 22,000 132,000 3 0.750 32,967 30,250 1,500 64,71724 Vice President of American Sales 135,000 27,000 162,000 2 0.375 20,230 37,125 750 58,10525 Member of Technical Staff 71,892 14,378 86,270 2 0.375 10,773 19,770 750 31,29326 Member of Technical Staff 96,343 19,269 115,612 2 0.375 14,437 26,494 750 41,68127 Member of Technical Staff 114,500 22,900 137,400 1 0.125 5,719 31,488 375 37,58228 Member of Technical Staff 47,028 9,406 56,434 1 0.125 2,349 12,933 375 15,65729 Account Executive 90,660 18,132 108,792 1 0.125 4,528 24,932 375 29,83580
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VALUATION FORFINANCIALREPORTINGFair
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VALUATION FORFINANCIALREPORTINGFair
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To our familiesnear and faryoung an
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PrefaceThe second edition of this b
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AcknowledgmentsTo Deanna Muraki, th
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xivAbout the Authorsappraiser with
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Valuation for FinancialReportingFai
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Appendix 1.2Pronouncements Excluded
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Exhibit 4.3 Target Company Business
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Exhibit 4.4 (Continued)Actual Forec
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Exhibit 4.8 Target Company Valuatio
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Exhibit 4.9 Target Company Valuatio
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210 IndexBusiness Enterprise Analys
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212 IndexGoodwill (continued )111,
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214 IndexLong-termcapital, 71debt,
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216 IndexSecurities and Exchange Co
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