CVA Discounts, Premiums, and Adjustments Flashcards
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Read the first 7 CVA Discounts, Premiums, and Adjustments flashcards as text
In the levels-of-value framework, which level sits at the top (highest value)?
Answer: Controlling interest value
The controlling interest level is at the top of the levels-of-value hierarchy because a controlling owner can direct all business decisions, command the highest price.
Which of the following factors would most likely INCREASE the appropriate DLOM for a given interest?
Answer: The shareholder agreement prohibits the transfer of shares for 10 years
A long lock-up or transfer restriction significantly reduces the ability to sell the interest, increasing the appropriate DLOM.
Pre-IPO studies are used to estimate DLOM by comparing:
Answer: Transaction prices of private company shares before an IPO versus the IPO offering price
Pre-IPO studies examine private placement prices relative to subsequent IPO prices to quantify the discount associated with the lack of a public market.
A key-person discount is most appropriately applied when:
Answer: A specific individual's skills, relationships, or reputation are critical to the company's success
A key-person discount recognizes the increased risk and potential value loss if a critical individual—upon whom the business heavily depends—were to leave.
The Quantitative Marketability Discount Model (QMDM) developed by Mercer primarily considers which variables?
Answer: Expected holding period, interim distributions, required rate of return, and expected growth
The QMDM is a discounted cash flow model at the shareholder level that incorporates holding period, expected dividends or distributions, required return, and expected value growth.
When applying a portfolio discount in business valuation, the analyst is accounting for:
Answer: The fact that a conglomerate's business units may be worth more if sold separately than as a combined entity
A portfolio (or conglomerate) discount reflects the market's tendency to value diversified conglomerates at a discount to the sum of their parts when sold individually.
Which empirical data source is most commonly cited for control premiums in acquisitions of publicly traded companies?
Answer: Mergerstat/BVR Control Premium Study
The Mergerstat/BVR Control Premium Study compiles control premiums paid over pre-announcement public market prices in U.S. mergers and acquisitions.
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