Practice Questions Lecture 6

Practice Questions Lecture 6 - FINA 5512 VALUATION Lecture...

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FINA 5512 VALUATION Lecture 6 Practice question Analysis and Valuation of Privately Held Companies 10.1 What is the capitalization rate and how does it relate to the discount rate? 10.3 What is the marketability discount and what are common ways of estimating this discount? 10.14 Based on its growth prospects, a private investor values a local bakery at $750,000. She believes that cost savings having a present value of $50,000 can be achieved by changing staffing levels and store hours. Based on recent empirical studies, she believes the appropriate liquidity discount is 20 percent. A recent transaction in the same city required the buyer to pay a 5 percent premium to the asking price to gain a controlling interest in a similar business. What is the most she should be willing to pay for a 50.1 percent stake in the bakery? 10.15 You have been asked by an investor to value a restaurant. Last year, the restaurant earned pretax operating income of $300,000. Income has grown 4% annually during the last five years, and it is expected to continue growing at that rate into the foreseeable future.
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