Alfred Sautin wants to invest in Dieciring, Inc., a private company. Based on earnings multiples of similar publicly traded firms, Alfred estimates the value of the private company's stock to be $19 per share. He plans to acquire a majority of the shares in the company. The expected control premium is 11 percent. He estimates the marketability discount for such a firm to be 14 percent. The discount for the key person, one of the founders who may leave the firm upon Alfred's control of the firm, is 16 percent. What price should he be willing to pay for these shares? (Round final answer to two decimal places.)

Question

Quizplus · Accepted Answer

The correct price should be $15.24 per share. The value of the private company's stock is $19 per share. The expected control premium is 11 percent, so the price should be increased by 11 percent to $21.09 per share. The marketability discount is 14 percent, so the price should be decreased by 14 percent to $18.10 per share. The discount for the key person is 16 percent, so the price should be decreased by 16 percent to $15.24 per share.

Alfred Sautin Wants to Invest in Dieciring, Inc