Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

The option value was estimated using the

Black-Scholesmodel.Theprobabilitywasestimated,

using the expected return of 16.26% for the equity

71 and the standard deviation of 25%, to be 44.05%.

72 Dividingthevalueofliquiditybytheestimated

valueofequityforKristinKandyof$1,796million

yields an illiquidity discount of 8.67%.

The resulting values are provided in the following table:

Approach

Estimated

Discount

Liquidity-Adjusted

Value (in millions)

Fixed discount—restricted

stock

25.00% $1,347.00

Fixed discount—restricted

stock versus registered

placements

15.00 1,526.60

15% base discount adjusted

for revenues/health (Silber)

17.17 1,487.63

Synthetic spread 12.65 1,570.42

Option-based approach (20%

upside; industry variance of

25%; one-year trading

restriction)

8.67% $1,640.24

Ifweignorethepurerestrictedstockdiscountof25%asan

overestimateandtheoption-basedapproach,theilliquidity

discounts fall within a fairly tight range (12.65% to 17.17%).

Adjusting Discount Rates for Illiquidity