Certified Valuation Analyst (CVA) Practice Exam

Which case is associated with a discount for lack of marketability?

1. Simplot

2. Mandelbaum

3. Houlihan et al.

4. Emory and Emory dot.com

The correct answer is: Mandelbaum

The case associated with a discount for lack of marketability is the Mandelbaum case. This case is significant in the valuation field because it established a clear precedent for applying discounts when valuing closely held businesses that lack an active market for their shares. In the Mandelbaum case, the court awarded a discount for lack of marketability based on the fact that the ownership interests were not easily transferable, nor did they have a ready market. This decision underscored the importance of considering marketability in valuations, particularly for interests in firms where the liquidity of the investment is a concern. The rationale is that investors typically require a higher return for investments that are less liquid, resulting in a discount on the valuation of such assets. By reflecting the additional perceived risk and lack of marketability, this case has helped practitioners make more accurate and justified valuations in situations where market conditions do not support immediate sale or transfer of ownership interests.