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Assume a minority shareholder holds 10% of a private firm’s equity, with the CEO holding the other 90%. Using normalized earnings, the value of the firm’s equity is estimated at $20 million. The CEO refuses to sell the firm and the minority shareholder cannot sell their interest easily. A discount for lack of marketability (DLOM) of 15% will be applied. A discount for lack of control (DLOC) will also be estimated. Using reported earnings instead of normalized earnings provides an estimated firm equity value of $19 million. Which of the following is closest to the value of the minority shareholder’s equity interest? A. $1,615,000. B. $1,700,000. C. $1,900,000. |