Certified Valuation Analyst CVA Discounts, Premiums, and Adjustments 1

Question 1

Which of the following best describes the Discount for Lack of Marketability (DLOM)?

Accepted Answer

A reduction in value applied to an interest that cannot be quickly sold at a reasonable price

Answer

A reduction applied to a controlling interest for illiquidity

Answer

A premium added to minority interests in private companies

Answer

An adjustment made to normalize earnings before applying a multiple

Question 2

A minority interest discount is applied primarily because minority shareholders lack:

Accepted Answer

The ability to control business decisions such as distributions and asset sales

Answer

Access to audited financial statements

Answer

Voting rights in publicly traded companies

Answer

Protection under federal securities laws

Question 3

The control premium is best defined as:

Accepted Answer

The additional value an investor pays to obtain a controlling interest over a business

Answer

The amount paid above book value for an acquisition

Answer

The discount applied to a minority interest for lack of liquidity

Answer

The difference between fair market value and investment value

Question 4

Which method is most commonly used to quantify the Discount for Lack of Marketability using empirical data?

Accepted Answer

Restricted stock studies and pre-IPO studies

Answer

The guideline public company method

Answer

The discounted cash flow method with a liquidity premium

Answer

The Mergerstat/BVR control premium study

Question 5

When moving from a controlling interest value to a minority, non-marketable interest value, the analyst typically applies adjustments in which order?

Accepted Answer

Minority interest discount first, then DLOM

Answer

DLOM first, then minority interest discount

Answer

Control premium first, then DLOM

Answer

DLOM and minority discount simultaneously as a combined adjustment

Question 6

Which of the following is an analytical model used to estimate DLOM based on option pricing theory?

Accepted Answer

The Chaffe put option model

Answer

The Pratt model

Answer

The Damodaran multistage growth model

Answer

The Mergerstat regression model

Question 7

A Discount for Lack of Control (DLOC) is most closely related to which of the following?

Accepted Answer

The inability of a minority shareholder to direct operations or declare dividends

Answer

The difference between the market price and book value per share

Answer

A reduction in value due to thin trading volume on public exchanges

Answer

An adjustment for key-person dependency risk

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