Advanced D P Chapter Eight Review Questions
Advanced Discounts and Premiums
ALTERNATIVE DISCOUNT COMPUTATION METHODOLOGIES
ADVANCED DISCOUNTS AND PREMIUMS CHAPTER 8 REVIEW QUESTIONS
© 2003–2014 Robert J. Grossman and National Association of Certified Valuators and Analysts 2014.v1
Chapter Eight – 17
ALTERNATIVE DISCOUNT COMPUTATION METHODOLOGIES
Advanced Discounts and Premiums
ADVANCED DISCOUNTS AND PREMIUMS CHAPTER REVIEW QUESTIONS Chapter 8: Alternative Discount Computation Methodologies 1.
The FMV study found that stock in privately held companies is similar in terms of liquidity and marketability to large blocks of restricted stock due to the dribble-out rules under Rule 144 that severely limit the amount of restricted stock that can be sold after the restrictions lapse. As such, large block restricted stock data can be used as a proxy for determining discounts in privately held companies. a. b.
2.
Which of the following is NOT a key assumption or consideration of the VCF Longstaff DLOM Methodology? a. b. c. d.
3.
The QMDM Method The FMV Method The VFC Method The Ashok Abbott Method
Which of the following cases found the Tax Court critical of the calculation of the discount for lack of marketability under the Mercer methodology? a. b. c. d.
5.
By comparison, the only real difference between well run, publicly traded companies and well run, privately traded companies is the difference in liquidity or the lack of liquidity Risk adjusted rates are fungible If control were worth more than liquidity, it would serve as a disincentive to going public and, ultimately, there would be no public companies Investment returns should be considered minority, marketable returns. Guidance provided by studies as to the value differential between voting and nonvoting shares
The model developed by Z. Christopher Mercer to assist valuators in quantifying discounts for lack of marketability is: a. b. c. d.
4.
True False
Janda v. Commissioner Mandelbaum v. Commissioner Estate of Mellinger v. Commissioner None of the above
Which method for calculating a discount studied 470 restricted stock transactions and found that the discount varied based on a variety of underlying financial characteristics of the subject company: a. b. c. d.
The Quantitative Marketability Discount Model Dr. Ashok Abbott’s Model The FMV Method The Vinaello Forensic Consulting Methodology
18 – Chapter Eight
© 2003–2014 Robert J. Grossman and National Association of Certified Valuators and Analysts 2014.v1
Advanced Discounts and Premiums
6.
ALTERNATIVE DISCOUNT COMPUTATION METHODOLOGIES
Which of the following stated that “we must remind the parties that the amount of discount must be decided on the basis of the record of the instance case, and not what a court found reasonable in another case?” a. b. c. d.
Estate of LeFrak Estate of Mandelbaum Rule 144 Lamda
© 2003–2014 Robert J. Grossman and National Association of Certified Valuators and Analysts 2014.v1
Chapter Eight – 19
ALTERNATIVE DISCOUNT COMPUTATION METHODOLOGIES
Advanced Discounts and Premiums
This page intentionally left blank.
20 – Chapter Eight
© 2003–2014 Robert J. Grossman and National Association of Certified Valuators and Analysts 2014.v1
ALTERNATIVE DISCOUNT COMPUTATION METHODOLOGIES
ADVANCED DISCOUNTS AND PREMIUMS CHAPTER 8 REVIEW QUESTIONS
© 2003–2014 Robert J. Grossman and National Association of Certified Valuators and Analysts 2014.v1
Chapter Eight – 17
ALTERNATIVE DISCOUNT COMPUTATION METHODOLOGIES
Advanced Discounts and Premiums
ADVANCED DISCOUNTS AND PREMIUMS CHAPTER REVIEW QUESTIONS Chapter 8: Alternative Discount Computation Methodologies 1.
The FMV study found that stock in privately held companies is similar in terms of liquidity and marketability to large blocks of restricted stock due to the dribble-out rules under Rule 144 that severely limit the amount of restricted stock that can be sold after the restrictions lapse. As such, large block restricted stock data can be used as a proxy for determining discounts in privately held companies. a. b.
2.
Which of the following is NOT a key assumption or consideration of the VCF Longstaff DLOM Methodology? a. b. c. d.
3.
The QMDM Method The FMV Method The VFC Method The Ashok Abbott Method
Which of the following cases found the Tax Court critical of the calculation of the discount for lack of marketability under the Mercer methodology? a. b. c. d.
5.
By comparison, the only real difference between well run, publicly traded companies and well run, privately traded companies is the difference in liquidity or the lack of liquidity Risk adjusted rates are fungible If control were worth more than liquidity, it would serve as a disincentive to going public and, ultimately, there would be no public companies Investment returns should be considered minority, marketable returns. Guidance provided by studies as to the value differential between voting and nonvoting shares
The model developed by Z. Christopher Mercer to assist valuators in quantifying discounts for lack of marketability is: a. b. c. d.
4.
True False
Janda v. Commissioner Mandelbaum v. Commissioner Estate of Mellinger v. Commissioner None of the above
Which method for calculating a discount studied 470 restricted stock transactions and found that the discount varied based on a variety of underlying financial characteristics of the subject company: a. b. c. d.
The Quantitative Marketability Discount Model Dr. Ashok Abbott’s Model The FMV Method The Vinaello Forensic Consulting Methodology
18 – Chapter Eight
© 2003–2014 Robert J. Grossman and National Association of Certified Valuators and Analysts 2014.v1
Advanced Discounts and Premiums
6.
ALTERNATIVE DISCOUNT COMPUTATION METHODOLOGIES
Which of the following stated that “we must remind the parties that the amount of discount must be decided on the basis of the record of the instance case, and not what a court found reasonable in another case?” a. b. c. d.
Estate of LeFrak Estate of Mandelbaum Rule 144 Lamda
© 2003–2014 Robert J. Grossman and National Association of Certified Valuators and Analysts 2014.v1
Chapter Eight – 19
ALTERNATIVE DISCOUNT COMPUTATION METHODOLOGIES
Advanced Discounts and Premiums
This page intentionally left blank.
20 – Chapter Eight
© 2003–2014 Robert J. Grossman and National Association of Certified Valuators and Analysts 2014.v1
