any idea how they calculated the average risk??
also the question in the same paper regarding a 25% discount on EV/EBITDA and P/B. How can I 25% discount for illiquidity and thin trading REDUCE these. Surely they would INCREASE as they’re less attractive. Any expansion on this would be great
you use the input from the proxy company to derive your subject company’s value.
hence, you will need to discount the value of your subject company because the proxy company is more attractive than the subject company.
without discounting the value derived using the proxy company, the value of your subject company will be overstated (looks attractive but in fact, it isn’t due illiquidity).