LOS h: Discuss the role of ownership perspective in valuation.

Q1. An ownership perspective can be important for an analyst determining the value of a share position. A block of shares that is large enough to direct the future actions of the firm should receive a:

A)   premium for control.

B)   a discount for size.

C)   premium for block-size.

Q2. An ownership perspective can be important for an analyst determining the value of a share position. A discount for lack of marketability would most likely be assigned to a position of shares in which of the following?

A)   A non-publicly traded firm.

B)   A very large publicly traded firm.

C)   A bankrupt firm.

Q3. An ownership perspective can be important for an analyst determining the value of a share position. A block of shares that is very large in relation to the daily trading volume should receive a:

A)   discount for lack of liquidity.

B)   premium for block-size.

C)   a brokerage discount for volume.

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Q1. An ownership perspective can be important for an analyst determining the value of a share position. A block of shares that is large enough to direct the future actions of the firm should receive a:

A)   premium for control.

B)   a discount for size.

C)   premium for block-size.

Correct answer is A)

A share position that is large enough to direct the future actions of a firm should receive a premium for control.

Q2. An ownership perspective can be important for an analyst determining the value of a share position. A discount for lack of marketability would most likely be assigned to a position of shares in which of the following?

A)   A non-publicly traded firm.

B)   A very large publicly traded firm.

C)   A bankrupt firm.

Correct answer is A)

A share position in a non-publicly traded firm would be assigned a discount because it may require a lengthy search to locate willing and able buyers, and they may be only willing to purchase it at a discount.

Q3. An ownership perspective can be important for an analyst determining the value of a share position. A block of shares that is very large in relation to the daily trading volume should receive a:

A)   discount for lack of liquidity.

B)   premium for block-size.

C)   a brokerage discount for volume.

Correct answer is A)

A share position that is very large in relation to the daily trading volume of the shares should be subject to a discount for lack of liquidity as it may take additional time to liquidate the position.