Advanced D P Chapter Two Review Questions
Advanced Discounts and Premiums
CONTROL PREMIUMS/MINORITY DISCOUNTS
ADVANCED DISCOUNTS AND PREMIUMS CHAPTER 2 REVIEW QUESTIONS
© 2003–2014 Robert J. Grossman and National Association of Certified Valuators and Analysts 2014.v1
Chapter Two – 19
CONTROL PREMIUMS/MINORITY DISCOUNTS
Advanced Discounts and Premiums
ADVANCED DISCOUNTS AND PREMIUMS CHAPTER REVIEW QUESTIONS Chapter 2: Control Premiums and Minority Discount s 1.
When valuing a minority ownership interest, it is necessary to understand who owns the balance of the interests and the size of the blocks of ownership held by other investors. a. b.
2.
Mergerstat Review, published by Fact Set Mergerstat, LLC, provides business valuators with thirdparty evidence of implied minority interest discounts. a. b.
3.
Synergistic value Minority, marketable value Minority, non-marketable value Control, marketable value
The formula used to generate an implied minority interest discount from Mergerstat control premium data is: a. b. c. d.
5.
True False
A valuator using the Discounted Cash Flow Method finds the pre-discount value of a minority interest in a company to be $500,000. Though the valuator knows the control shareholder takes out excessive compensation, no normalization adjustment was made. The level of value produced under these facts is: a. b. c. d.
4.
True False
1 minus ((1) divided by (1 minus control premium)) 1 plus ((1) divided by (1 plus the control premium)) 1 minus ((1) multiplied by (1 plus the control premium)) 1 minus ((1) divided by (1 plus the control premium))
The most common criticism of utilizing control premium data published in the Mergerstat Review® to calculate a minority interest discount is: a. b. c. d.
The fact that the average premiums included in the study are overstated because negative premiums are excluded from the study The fact that implied minority discounts calculated from the data are overstated because negative premiums are included from the study The fact that the premium is calculated based on the stock’s closing price only two days from the acquisition announcement The fact that the data may overestimate control premiums and implied minority interest discounts because the stock of the target’s acquisition may begin to rise more than five days prior to the announcement
20 – Chapter Two
© 2003–2014 Robert J. Grossman and National Association of Certified Valuators and Analysts 2014.v1
CONTROL PREMIUMS/MINORITY DISCOUNTS
ADVANCED DISCOUNTS AND PREMIUMS CHAPTER 2 REVIEW QUESTIONS
© 2003–2014 Robert J. Grossman and National Association of Certified Valuators and Analysts 2014.v1
Chapter Two – 19
CONTROL PREMIUMS/MINORITY DISCOUNTS
Advanced Discounts and Premiums
ADVANCED DISCOUNTS AND PREMIUMS CHAPTER REVIEW QUESTIONS Chapter 2: Control Premiums and Minority Discount s 1.
When valuing a minority ownership interest, it is necessary to understand who owns the balance of the interests and the size of the blocks of ownership held by other investors. a. b.
2.
Mergerstat Review, published by Fact Set Mergerstat, LLC, provides business valuators with thirdparty evidence of implied minority interest discounts. a. b.
3.
Synergistic value Minority, marketable value Minority, non-marketable value Control, marketable value
The formula used to generate an implied minority interest discount from Mergerstat control premium data is: a. b. c. d.
5.
True False
A valuator using the Discounted Cash Flow Method finds the pre-discount value of a minority interest in a company to be $500,000. Though the valuator knows the control shareholder takes out excessive compensation, no normalization adjustment was made. The level of value produced under these facts is: a. b. c. d.
4.
True False
1 minus ((1) divided by (1 minus control premium)) 1 plus ((1) divided by (1 plus the control premium)) 1 minus ((1) multiplied by (1 plus the control premium)) 1 minus ((1) divided by (1 plus the control premium))
The most common criticism of utilizing control premium data published in the Mergerstat Review® to calculate a minority interest discount is: a. b. c. d.
The fact that the average premiums included in the study are overstated because negative premiums are excluded from the study The fact that implied minority discounts calculated from the data are overstated because negative premiums are included from the study The fact that the premium is calculated based on the stock’s closing price only two days from the acquisition announcement The fact that the data may overestimate control premiums and implied minority interest discounts because the stock of the target’s acquisition may begin to rise more than five days prior to the announcement
20 – Chapter Two
© 2003–2014 Robert J. Grossman and National Association of Certified Valuators and Analysts 2014.v1
