Valuing private company: Keshav Sinha is interested in investing in a private company. Based on earnings multiples of similar publicly traded companies, he estimates the value of the private company's shares to be $21.27 per share. He plans to acquire a majority of the shares in the company. The expected control premium is 10 per cent. Keshav estimates the marketability discount for such a company to be 12 per cent. The discount for the key person, one of the founders who may leave the company upon Keshav's control of the company, is 20 per cent. What price should he be willing to pay for these shares?

Question

Quizplus · Accepted Answer

The correct price is $16.47, which is calculated as follows:Value per share = $21.27Control premium = 10%Marketability discount = 12%Key person discount = 20%Adjusted value per share = Value per share * (1 + Control premium) * (1 - Marketability discount) * (1 - Key person discount)= $21.27 * (1 + 0.10) * (1 - 0.12) * (1 - 0.20)= $16.47

Valuing Private Company: Keshav Sinha Is Interested in Investing in a Private