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?

Question

Quizplus · Accepted Answer

The Answer is The investor should not offer more than $336,672.
Maximum Offer Price (50.1%) = ($750,000+$50,000) x (1-.2)(1+.05) x .501 = $336,672

Based on Its Growth Prospects, a Private Investor Values a Local