Instrument 4 Equity Investment in a Nonpublic Company In 20X1, FFC invested in the common stock of Company X, a privately held clothing retailer that operates in a niche market of the baby clothing industry Quoted prices are not available for Xs stock 4 Most of Xs competitors are either privately held or subsidiaries of larger publicly traded clothing retailers Company X is similar to two other organizations whose shares are thinly traded in an observable market In determining an appropriate approach for measuring the fair value of its equity investment in X, FFC considered the following factors to establish whether a single or multiple valuation techniques should be adopted Availability and reliability of data FFC had sufficient data to support both the income and market approaches Comparative levels of the alternative approaches in the fair value hierarchy When using a market approach to measure the fair value of its investment in X, FFC would need to make significant entity specific adjustments to observable market transactions (i e , risk adjustments for illiquidity, uncertainty of Xs future financial performance in relation to its comparables, and other adjustments to reflect business model differences between X and its comparables) Similarly, when measuring fair value using an income approach (on the basis of discounted cash flows), FFC would be required to use significant entity specific assumptions in forecasting Xs future cash flows Views of market participants on the relevance of valuation techniques Through discussions with valuation specialists, FFC believes that market participants use multiple techniques (income and market approaches) to determine bid prices for similar investments FFC also used both approaches in 20X1 when pricing its investment in X On the basis of this information, in 20X1 FFC determined that it would use both market and income approaches (weighted equally) to measure the fair value of its investment in X FFC has applied a consistent approach during 20X2 What level of the Fair Value Hierarchy would this instrument be in

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Instrument 4 Equity Investment in a Nonpublic Company In 20X1, FFC invested in the common stock of Company X, a privately held clothing retailer that

Instrument 4 Equity Investment in a Nonpublic Company

In 20X1, FFC invested in the common stock of Company X, a privately held clothing retailer that operates in a niche market of the baby clothing industry. Quoted prices are not available for Xs stock.4 Most of Xs competitors are either privately held or subsidiaries of larger publicly traded clothing retailers. Company X is similar to two other organizations whose shares are thinly traded in an observable market.

In determining an appropriate approach for measuring the fair value of its equity investment in X, FFC considered the following factors to establish whether a single or multiple valuation techniques should be adopted:

Availability and reliability of data FFC had sufficient data to support both the income and market approaches.
Comparative levels of the alternative approaches in the fair value hierarchy When using a market approach to measure the fair value of its investment in X, FFC would need to make significant entity-specific adjustments to observable market transactions (i.e., risk-adjustments for illiquidity, uncertainty of Xs future financial performance in relation to its comparables, and other adjustments to reflect business model differences between X and its comparables). Similarly, when measuring fair value using an income approach (on the basis of discounted cash flows), FFC would be required to use significant entity-specific assumptions in forecasting Xs future cash flows.
Views of market participants on the relevance of valuation techniques Through discussions with valuation specialists, FFC believes that market participants use multiple techniques (income and market approaches) to determine bid prices for similar investments. FFC also used both approaches in 20X1 when pricing its investment in X.

On the basis of this information, in 20X1 FFC determined that it would use both market and income approaches (weighted equally) to measure the fair value of its investment in X. FFC has applied a consistent approach during 20X2.

What level of the Fair Value Hierarchy would this instrument be in?