5.5 Taxes in valuators’ reports

At MVI we believe that complex tax issues are best handled by tax experts. This is both in the interest of the clients, who will get better and more comprehensive tax advice from a tax expert than from a valuation expert, and in MVI’s interest, in that we do not wish to be exposed to the risk that could arise if we inadvertently provide incorrect tax advice.

Nevertheless, it is important to recognize the impact of taxes on the value of businesses and some basic calculations are included in our reports (i.e. calculations that do not involve complex tax planning).

Taxes can have a significant impact on the value of a business.

Taxes affect the business valuation calculations in the following areas:

  • Pro forma cashflow statement which is usually prepared on a post-tax basis, given that the weighted average cost of capital (“WACC”) is also a post-tax figure. WACC is applied to pro forma cashflows in calculating enterprise value
  • Tax shields
  • Disposition costs
  • Weighted average cost of capital
  • Use of undepreciated capital cost (i.e. the tax equivalent of book value) and capital cost allowances (i.e. the tax equivalent of depreciation) in analyzing the fair market value of depreciable assets

The tax rates used should be those in force at the valuation date.

Contact MVI to discuss how taxes impact the value of your company’s shares.