Hey guys, I have a pretty elementary business valuation question.
Imagine you are valuing a private digital marketing firm that owns its own office. How would you deal with the real estate value? Would you first value the business pretending it doesn’t own any office and therefore adding a rent expense to the future cash flows + add the real estate value to the business value? Or only value the business with no market rent expense?
I’ve been educated to go with the second option (because without the office the company wouldn’t be able to generate any cash flow), but I still think the first option brings more value… I have a hard time believing that discounting a rent in perpetuity reduces the value of the business by the same amount as the real estate value.