What is a premise of value?
Similar to the preceding discussion concerning standard of value, selection of a premise of value has a substantial effect on appraised value. There are two basic premises of value to consider: a) value as a going concern and b) value in liquidation. A premise is chosen based on the highest and best use of the business, given the circumstances and market conditions at the time of the valuation. A going concern premise usually assumes that a company will continue in business in a similar manner as conducted in the past, and is based on a company’s ability to generate earnings. According to USPAP, Standards Rule 9-3, in developing an appraisal of an equity interest in a business enterprise with the ability to cause liquidation, an appraiser must investigate the possibility that the business enterprise may have a higher value by liquidation of all or part of the enterprise than by continued operation as is.
Similar to the preceding discussion concerning standard of value, selecting a premise of value has a substantial effect. There are two basic premises: a) value as a going concern and b) value in liquidation. A premise is chosen based on the highest and best use of the business, given the circumstances and market conditions at the time of the valuation. A going concern premise usually assumes that a company will continue in business in a similar manner as conducted in the past, and is based on a company’s ability to generate earnings. According to USPAP, Standards Rule 9-3, in developing an appraisal of an equity interest in a business enterprise with the ability to cause liquidation, an appraiser must investigate the possibility that the business enterprise may have a higher value by liquidation of all or part of the enterprise than by continued operation as is.
