A Registered Valuer has been asked to determine the combined level of valuation discounts for a small equity interest in a private company. The Valuer concluded that an appropriate control premium is 15 percent. A discou

The valuation of a small equity interest in a private company would typically be calculated on a basis that it reflects the lack of control and lack of marketability of the interest. The control premium of 15 percent must first be used to provide an indication of a discount for lack of control (DLOC). A lack of control discount can be calculated using the formula: Lack of control discount = 1 - [1 / (1 + Control Premium)] In this case, a lack of control discount of approximately 13 percent is calculated as 1 - [1 / (1 + 15%)] = 1 - 1/1.15 = 1 - 0.86956 = 0.13044 or 13.044%. The discount for lack of marketability (DLOM) was specified. Valuation discounts are applied sequentially and are not added. A combined discount of approximately 35 percent is calculated as 1 - (1 - 13%) X (1 - 25%) = 1 - (0.87) X (0.75) = 1 - 0.6525 = 0.3475 or 34.75%.