Suppose that Jane Doe owns 10 percent of the stock of Able, and that the remaining 90 percent is held by CEO John Smith. Smith is interested in selling Able to a third party. Smith advised Doe that if Able isn’t sold he has no reason to purchase Doe’s 10 percent interest. Assume the following:

• Valuation discounts assuming imminent transaction:
• Lack of control discount = 0 percent.
• Lack of marketability discount = 5 percent.
• Valuation discounts assuming continued operation as a private company:
• Lack of control discount: incorporated through use of reported earnings rather than normalized earnings.
• Lack of marketability discount = 25 percent.

•Indicated value of equity in operations:
• \($96\),000,000 in sale scenario.
• \($80\),000,000 in “stay private scenario.”⁴⁴

i. Discuss the relevance of valuation discounts assuming an imminent sale of Able.

ii. Explain which estimate of equity value should be used and calculate the value of Doe’s equity interest in Able assuming a sale is likely.

iii. Discuss the relevance of valuation discounts assuming Able continues as a private company.

iv. Explain which estimate of equity value should be used and calculate the value of Doe’s equity interest assuming Able continues as a private company.

v. Contrast the valuation conclusions and discuss factors that contribute to the difference in the concluded values.