Question #45
Reading: Reading 24 Private Company Valuation
PDF File: Reading 24 Private Company Valuation.pdf
Page: 22
Status: Correct
Correct Answer: A
Question
An analyst is examining the stock of three companies. Given the information below, which of them is most likely to be the stock of a private firm? Firm Restrictions on Sale of Stock? DLOM Stock Ownership of 5 Largest Owners A Yes 0% 28% B No 5% 35% C Yes 15% 64%
Answer Choices:
A. B) Firm
B. Firm
C. Firm B
Explanation
The stock most likely to be that of a private firm is Firm C. Compared to public stock,
private firm stock often has agreements that prevent shareholders from selling, is less
liquid (discounts for lack of marketability (DLOM) of C is 15%), and control is usually
concentrated in the hands of a few shareholders (stock ownership of largest owners of
Firm C is 64%).