Reading 73: Alternative Investments Losn习题精选 2010, companies, discounts, following

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LOS n: Describe alternative valuation methods for closely-held companies and distinguish among the bases for the discounts and premiums for these companies.

Which of the following is a disadvantage to using the comparables approach to valuing investments in closely held companies?

A) Cost to replace assets may not reflect current value.

B) The benchmark value used may be mispriced or difficult to establish.

C) It is difficult to determine the appropriate discount rate.

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A discount rate and an estimate of future income are both variables used in the income approach. The cost to replace a company’s asset is a factor when using the cost approach. The benchmark value used in the comparable may be mispriced or difficult to establish if no comparable companies have been sold recently.

 

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Regarding closely held companies, the valuation adjustment, due to the lack of a public market for the shares, is called a:

A) marketability premium.

B) minority discount.

C) marketability discount.

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A minority discount would be applied to shares that represent a non-controlling minority interest in a company. Shares of closely held companies are not publicly traded, so the shares should be discounted an appropriate amount to reflect this lack of marketability.

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Approaches commonly used in the valuation of closely held companies include all of the following EXCEPT the:

A) comparables approach.

B) fundamental value approach.

C) cost approach.

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The cost approach and the comparables approach are both used in the valuation of closely held companies. The fundamental value approach is a fictitious approach.