An Investor Is Interested in Making a Minority Equity Investment

question 48

Essay

An investor is interested in making a minority equity investment in a small privately held firm. Because of the nature of the business, she concludes that it would be difficult to sell her interest in the business quickly. Therefore, she believes that the discount for the lack of marketability to be 25%. She also estimates that if she were to acquire a controlling interest in the business, the control premium would be 15%. Based on this information, what should be the discount rate for making a minority investment in this firm? What should she pay for 20% of the business if she believes the value of the entire business to be $1 million.

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Definitions:

Mature Personality

Characterized by the ability to cope effectively with the realities of life, show emotional stability, and demonstrate empathy and concern for others.

Self-Objectification

The process by which individuals treat themselves as objects to be viewed and judged based on appearance.

Computer Analysis

The process of using computer algorithms and software to analyze data and identify patterns or insights.

Subjective Assessment

Evaluation based on personal opinions, feelings, or viewpoints rather than objective measurements or criteria.