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

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Case Study 2: Impairment Under SFAS No. 142 113Amortization BenefitDiscount Rate 17.0%Tax Rate 40.0%Tax Amortization Period (Years) 15Amortization Benefit 1,294,507Fair Value of Software, Rounded $8,430,000SOFTWARE DEVELOPMENT COSTS—ESTIMATED PROJECT TEAMFunctionNumberBurdenedHourly RateProject Manager 1 $210.00Systems Analyst 2 160.00Technical Writer 1 130.00Programmer 4 120.00Support 2 55.00Blended Hourly Rate, Rounded $125.00Footnotes:(1) Lines of code per hour, based on productivity assessment for average module of programming.(2) Estimate based on number of lines of redundant/extraneous code, effective age, and remainingeconomic life of system. Remaining useful life is three years.Note: Some amounts may not foot due to rounding.The impairment test presented in this example is assumed to be performed as of December 31, 2007.# Copyright 2007 by FVG Holdings, LC and Financial Valuation Solutions, LLC. All rights reserved. Used with permission.Trademarks/Trade NameAs discussed earlier, Target Company has one valuable trade name. All of theCompany’s products and services are sold under the ‘‘XXX’’ trade name, andeach major product is identified by this trade name.The relief from royalty method was employed. A royalty rate of 2% is againapplicable, stated as a percentage of sales. Applying this same rate to a lower salesforecast obviously results in a lower fair value as of December 31, 2007.The rights to use the trade name transfer to the buyer in perpetuity, giving it anindefinite life. The fair value of the trade name is the present value of the royaltiesforecast for the ten-year period of 2008 to 2017, plus the present value of the residualat the end of the ten-year period, plus the amortization benefit. A 16% rate of returnwas again chosen to reflect a risk assessment that the trade name was about as risky asthe business overall.Based on our analysis as presented in Exhibit 3.20, we concluded that theaggregate fair value of the trade name as of the valuation date was $9,230,000.Because the carrying amount of this asset exceeds the fair value, the asset is
Exhibit 3.19 Target Company Valuation of Assembled Workforce as of December 31, 2007No. Job Title Salary20%(1)Train. Per. 33.3%Benefits Total Cl. Yrs. 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 44,953 8,991 53,944 1 0.125 2,245 12,362 375 14,9823 Member of Operations Staff 71,641 14,328 85,969 1 0.125 3,578 19,701 375 23,6544 Account Executive 91,170 18,234 109,404 1 0.125 4,554 25,072 375 30,0015 Member of Technical Staff 107,888 21,578 129,466 2 0.375 16,167 29,669 750 46,5866 Member of Technical Staff 33,244 6,649 39,893 1 0.125 1,661 9,142 375 11,1787 Vice President 142,000 28,400 170,400 2 0.375 21,279 39,050 750 61,0798 Member of Technical Staff 83,647 16,729 100,376 2 0.375 12,535 23,003 750 36,2889 Member of Operations Staff 104,700 20,940 125,640 1 0.125 5,230 28,793 375 34,39810 Chief Architect 155,500 31,100 186,600 3 0.750 46,603 42,763 1,500 90,86611 Director of Development 135,000 27,000 162,000 2 0.375 20,230 37,125 750 58,10512 Member of Technical Staff 77,772 15,554 93,326 2 0.375 11,654 21,387 750 33,79113 Account Executive 94,950 18,990 113,940 1 0.125 4,743 26,111 375 31,22914 Member of Technical Staff 81,300 16,260 97,560 1 0.125 4,061 22,358 375 26,79415 Chief Executive Officer 250,000 50,000 300,000 1 0.125 12,488 68,750 375 81,61316 Member of Technical Staff 82,000 16,400 98,400 2 0.375 12,288 22,550 750 35,58817 Member of Technical Staff 57,460 11,492 68,952 1 0.125 2,870 15,802 375 19,04718 Account Executive 106,400 21,280 127,680 2 0.375 15,944 29,260 750 45,95419 Member of Technical Staff 107,867 21,573 129,440 2 0.375 16,164 29,663 750 46,57720 Member of Technical Staff 110,000 22,000 132,000 3 0.750 32,967 30,250 1,500 64,71721 Vice President of American Sales 135,000 27,000 162,000 2 0.375 20,230 37,125 750 58,10522 Member of Technical Staff 114,500 22,900 137,400 1 0.125 5,719 31,488 375 37,58223 Member of Technical Staff 47,028 9,406 56,434 1 0.125 2,349 12,933 375 15,65724 Account Executive 90,660 18,132 108,792 1 0.125 4,528 24,932 375 29,835114
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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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Intellectual PropertyAppendix 2.1On
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Appendix 2.2Significant Changes in
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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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