Question

From the perspective of a potential private investor, valuing the equity of a privately held firm is different from valuing publicly listed stocks due to
Select one:
a. the lack of diversification of the potential private investor. The discount rate used to value private equity should only reflect its systematic risk.
b. the quality and amount of financial information. The financial statements of privately held firms may not comply with Generally Accepted Accounting Principles, they may not be audited, or they may not go back far enough.
c. the lack of a liquid market for investors to liquidate their investment when needed. The discount rate should be lower (and hence the valuation should be higher) to reflect the lack of liquidity.
d. None of these statements is true.
e. All of these statements are true.
Clear my choice

Answer 1

The quality and amount of financial information for a prvately held firm is a major decsion making parameter for an investor looking to invest. As such , it is challenging for an investor to value due to non price discovery in the market.

Answer is

b. the quality and amount of financial information. The financial statements of privately held firms may not comply with Generally Accepted Accounting Principles, they may not be audited, or they may not go back far enough.