True or false: If you are valuing a noncontrolling equity interest then there will be a discount for lack of control DLOC?
I think it's true.
If it is true, that means if you are valuing a controlling equity interest, then there will NOT be a discount for lack of control?
Does that sound correct?
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How do we decide whether or not a DLOM discount for lack of marketability is applied?作者: tikfed 时间: 2011-7-13 16:33
there is a chart in the CFA text that explains when to use DLOC and when not to - I dont have the book in front of me but that should answer your question. If my memory is working, I think you use it with GPM and sometimes with PTM but never with GPCM作者: SeanWest 时间: 2011-7-13 16:33
It depends. If your using Guidline transaction method which assumes you are buying a controlling interest you would add a DLOC.
If your using one of the other methods, forgot the name, the method assumes you're buying a small portion of the company and you wouldn't add a discount. Its already assumed. If were to buy a controlling share/whole company you would need to add control premium.作者: maryli 时间: 2011-7-13 16:33
That has to depend on the basis that you are using for your valuation. If you are using a public equity value and you are valuing a non-controlling interest, you do not need to apply a DLOC, because holding a public equity is usually a non-controlling position. On the other hand, if you are using a private equity value from another similar company (such as the guideline transaction method) which is from a controlling perspective and valuing a non-controlling interest, then you need to apply a DLOC.作者: busterbluth 时间: 2011-7-13 16:33
The chart is something like this:
Valuing a controlling interest when comparable was for minority interest = add control premium
Valuing a controlling interest when comparable was for majority interest = no adjustment necessary
Valuing minority interest when comparable was for minority interest = no adjustment necessary
Valuing a minority interest when comparable was for controlling interest = add discount for lack of control作者: benbenxiong 时间: 2011-7-13 16:33
when do we subtract the DLOC?作者: SpyAli 时间: 2011-7-13 16:34
I see. Very well said. I wish everybody would explain things as clearly as just did. Good luck on saturday.
