Once an equity value has been established, this value may need to be allocated among different classes of equity.
In the case of a complex capital structure, which may involve preferred stock with different rights and preferences, an allocation method will be required.
Some of these methods include the following:
Option pricing method (OPM)
Probability weighted expected return method (PWERM)
Hybrid method—a methodology that incorporates a PWERM and the OPM
Learn more about how to apply allocation models in the AICPA Guide.