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I'd like to respond to one of Georgia's questions on Miccolis (I do not
have the paper with me, so can not respond to the remainder). The
statement about using a higher discount rate than the IRR provided by
the buyer relates back to the income model: Value = adjusted surplus +
pv of future earnings - cost of capital. What Miccolis is getting at is
that if one does not use an explicit mathematical subtraction for the
cost of capital, one has to discount future earnings at a higher rate
than the buyer's IRR, to come up with a similar result to the result one
would get if one used the IRR, and then subtracted the cost of capital.
Discounting at a higher rate produces a lower present value, so it's the
same thing.
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