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A Reviewer's Handbook to Business Valuation: Practical Guidance to the Use and Abuse of a Business Appraisal by Timothy R. Lee, L. Paul Hood Jr.

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Chapter 1

Fundamental Concepts for Defining Value

This chapter discusses the concepts and framework for defining value. These include the standard of value, the level of value, and the premise of value. Using this basic foundation for defining value, Chapter 2 moves through the primary defining elements of an appraisal engagement that include the value definitions discussed in this chapter.

When we say the word value, we all presume that we know what that means. However, it is just not quite that simple. This chapter defines and distinguishes between the standard of value, the level of value, and the premise of value, including the differences within each of those fundamental building blocks of business valuation.

Standard of Value

According to Merriam-Webster, the literal and conceptual meaning of the word value includes the following:

A fair return or equivalent in goods, services, or money for something exchanged;

1. The monetary worth of something;

2. Relative worth, utility, or importance;

3. A numerical quantity that is assigned or determined by calculation or measurement;

4. The relative duration of a musical note;

5. Relative lightness or darkness of a color or the relation of one part of a picture to another with respect to lightness or darkness;

6. Something (as a principle or quality) intrinsically valuable or desirable.

Defining value is not as easy a task as you might initially believe (as it turns out, naivete is not so blissful). There are quite a few trees and ...

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