ABSTRACT
The previous chapter introduced the economics of the firm. Using a firm’s earnings and a discount rate, we introduced a model for the value of a financial asset such as stock in a company.
In this chapter we examine a subset of finance — the practice of valuing a particular asset, namely a business. There are numerous books on valuation, most of which are written from the point of view of an accountant or a professional appraiser.205 Some of these are quite detailed in the topics they cover. However, their focus is often on standard valuation equations and discount factors rather than on the fundamental economics of the firm. Conversely, for a reader with a strong economics background, the emphasis here on understanding the underlying industry and business prospects of the firm will seem obvious.
