Most valuations using the income approach rely on data from the public securities markets, which are highly liquid. Consequently, especially when valuing minority interests in a closely held company, a discount for lack of marketability is applicable to the value derived from the income approach. Alternatively, a percentage may be added to me discount or capitalization rate to reflect the relative lack of marketability.

1. Which of the following is a correct statement about discount for lack of marketability studies?

a. Restricted stock studies apply to minority interests, while pre-initial public offering
(IPOJ studies apply to controlling interests.

b. Restricted stock studies apply to controlling interests, while pre-initial public offering (IPO) studies apply to minority interests.

c. Both restricted stock studies andpre-TPO studies apply to minority interests.

d. Both restricted stock studies andpre-lPO studies apply to controlling interests.

2. What is the most comprehensive restricted stock study to date?

a. Standard Research Consultants study.

b. William Siltaer study.

c. The FMVRestricted Stock Study™,

d. Management Planning study.

3. Which of the following pre- IPO studies contains the most transactions for a given year?

a. John Emory studies (formerly Baird &. Co.).

b. Willamette Management Associates studies.

c. Valuation Advisors' Lack of Marketability Discount Study™.

d. The Willamette Management and Valuation Advisors studies have about (he same number of transactions per year, each more than the Hmoiy studies.

4. Which ot' the following is the correct statement about studies on discounts for lack of marketability?

a. Both restricted stock studies and pre-IPO studies have shown relatively constant discounts from the 1970s to the present.

b. Restricted stock studies have shown decreasing discounts since 1990, when the SEC started loosening reporting and trading restrictions, while the prc-TPO studies have shown relatively constant discounts over time.

c. "Both restricted stock and pre-IPO studies have shown decreasing discounts since 1990, when the SEC started loosening reporting and trading restrictions.

d. Average discounts from both restricted stock and pre-TPO studies have been highly volatile from the 1970s to the present.

5. Which of the following is a correct statement about discounts for lack of marketability in the U.S. Tax Court?

a. Discounts for lack of marketability usually are not allowed for either controlling interests or minority interests,

b. Discounts for lack of marketability are not allowed for controlling interests, but they usually are allowed for minority interests,

c. Discounts for lack of marketability sometimes are allowed for controlling interests, but they tend to be smaller than for minority interests,

d. Discounts for lack of marketability usually are allowed for both controlling interests and minority interests, and tend to be about the same for both.

6. The cost, of capital for an investment, increases with increasing liquidity and decreases with decreasing liquidity.

7. The discount for lack of marketability may be reflected in a discrete discount at the end of a valuation performed by the discounted cash flow or capitalization methods, or it may be reflected as an added factor in the discount or capitalization rate.

8. A "restricted stock'1 is one that is in all respects equivalent to a publicly traded stock except for restrictions on trading.

9. The "pre-IPO studies" refer to studies of transactions in securities of privately held companies prior to an initial public offering.

10. The fact that discounts for lack of marketability in the restricted stock studies have decreased in recent years is an indication that discounts for lack of marketability for closely held minority stocks should be less than in the past.