Certified Valuation Analyst Business Valuation Concepts 4

Question 1

A discount for lack of control (DLOC) is applied to a minority interest because the holder cannot:

Accepted Answer

Direct company policy or distributions

Answer

A minority owner lacks the power to control operations, dividends, or strategic decisions.

Question 2

A discount for lack of marketability (DLOM) compensates for:

Accepted Answer

The inability to quickly convert an interest to cash

Answer

DLOM reflects the absence of a ready market to liquidate the interest promptly at low cost.

Question 3

A control premium is the inverse counterpart of which discount?

Accepted Answer

Discount for lack of control

Answer

Control premium and DLOC are mathematically related opposites describing the same control attribute.

Question 4

Empirical support for DLOM has traditionally come from restricted stock studies and:

Accepted Answer

Pre-IPO studies

Answer

Pre-IPO studies, alongside restricted stock studies, are classic empirical bases for marketability discounts.

Question 5

A key-person discount may be appropriate when:

Accepted Answer

The business depends heavily on one individual

Answer

Heavy reliance on a single individual creates risk warranting a key-person discount.

Certified Valuation Analyst Practice Test