Reading 44: Private Company Valuation-LOS k 习题精选 2010, valuation, following, discounts, describes

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Session 12: Equity Investments: Valuation Models
Reading 44: Private Company Valuation

LOS k: Demonstrate the use of discounts and premiums in private company valuation.

 

 

 

Which of the following best describes the estimation of discounts for lack of marketability (DLOM) in private company valuations? The primary advantage of using put prices to estimate the DLOM over the other two methods is:

A) exchange traded put prices are readily available.

B) the volatility of the firm can be incorporated into the analysis.

C) the Black-Scholes model has been shown to be valid for private firms.

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If an interest in a firm cannot be easily sold, a DLOM is applied. The DLOM can be estimated using restricted share versus publicly traded share prices, pre-IPO versus post-IPO prices, and put prices. The advantage of using put prices over the other two DLOM estimation methods is that the estimated risk of the firm can be factored into the option price.

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Assume a minority shareholder holds 10% of a private firm’s equity, with the CEO holding the other 90%. Using normalized earnings, the value of the firm’s equity is estimated at $20 million. The CEO refuses to sell the firm and the minority shareholder cannot sell their interest easily. A discount for lack of marketability (DLOM) of 15% will be applied. A discount for lack of control (DLOC) will also be estimated. Using reported earnings instead of normalized earnings provides an estimated firm equity value of $19 million. Which of the following is closest to the value of the minority shareholder’s equity interest?

A) $1,615,000.

B) $1,700,000.

C) $1,900,000.

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Given these figures, the value of the minority shareholder’s equity interest is:

Firm's equity value	$19,000,000
Minority interest	10%
Value of minority interest without discounts	$1,900,000
minus DLOC of 0%	0
Value of interest if marketable	$1,900,000
minus DLOM of 15%	$285,000
Value of minority interest	$1,615,000

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An analyst calculates a control premium of 15% and discount for lack of marketability (DLOM) of 20%. Which of the following is closest to the total discount for valuing minority equity interests in the private firm?

A) 35.0%.

B) 35.7%.

C) 30.4%.

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The discount for lack of control (DLOC) can be backed out of the control premium.

The total discount also uses the DLOM.

Total Discount = 1 ? [(1 ? DLOC)(1 ? DLOM)]
Total Discount = 1 ? [(1 ? 0.1304)(1 ? 0.20)] = 30.4%

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