Question #21
Reading: Reading 24 Private Company Valuation
PDF File: Reading 24 Private Company Valuation.pdf
Page: 11
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
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 (DLO
Answer Choices:
A. $1,700,000
B. $1,900,000
C. $1,615,000
Explanation
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