--%>
Assignment Help - homework help

Explain investment of bank for illiquidity premium

When my company is not listed, therefore the investment banks apply an illiquidity premium. In fact, they say this is an illiquidity premium but then they call this a small cap premium. Only one of the banks, apparently based upon Titman y Martin (2007), that added the given small cap premiums as: “0.91 percent if the capitalization is situated among $1,167 and $4,794 million; 1.70 percent if the capitalization is among $331 and $1,167 million; 4.01% if this is lower than $331 million”. The other bank adds 2% since historically the return of small companies was smaller than those big companies. Which one is more suitable?

E

Expert

Verified

It is clear that the size is not always a source of risk: here, in all sectors, small companies along with lower risks than bigger ones. Conversely, it does not seem that illiquidity influences the value when the shares of an unlisted company have a buyer, either because this is stated in the bylaws of the company, or since a shareholder wants to convert his/her debt in shares…

   Related Questions in Corporate Finance

  • Q : Why required return cannot computed by

    Why can we not compute the required return (Ke) by the Gordon-Shapiro model [P0 = Div0 (1+g) / (Ke – g)] in place of using the CAPM? As we identify the current dividend (Div0) and the current share price (P0), we can acquire the growth rate of the dividend by th

    		•
  • Q : Problem on optimal capital structure

    XYZ Company has debt/assets ratio 50%, that is too high and it must be at 45% to be optimal. This debt reduction must also reduce the bankruptcy costs by $30 million. At present, XYZ has 5 million shares of common stock selling at $50 each. The tax rate of XYZ is 30%.

    		•
  • Q : Which data is the most suitable for

    Which data is the most suitable for finding betas?

    		•
  • Q : Profitability Ratios Profitability

    Profitability Ratios: These ratios comprise the Gross profit Margin, Net profit Margin, Operating Margin, Return on Equity (ROE), and Return on Total Assets. Such ratios help the firm to examine its profitability, the trend in profits and aid to take

    		•
  • Q : PV of Dividends PV of dividends:

    PV of dividends: Cortez, Inc., is expecting to pay out a dividend of $2.50 next year. After that it expects its dividend to grow at 7 percent for the next four years. What is the present value of dividends over the next five-year period if the required rate of return is 10 percent?

    		•
  • Q : Convertible Bonds-Corporate Bonds State

    State the term Convertible Bonds in Corporate Bonds?

    		•
  • Q : Determine the future value What would

    What would the future value after 5 years of $100 be at 10% compound interest?

    		•
  • Q : Relationship between the preferred

    Quetion: A private equity fund invests $100 million into a portfolio company and receives 100% of the preferred stock and 80% of the common stock of the company.  The preferred stock carries a face value of $1

    		•
  • Q : Explain lognormal random walk based on

    Explain lognormal random walk based on Brownian motion.

    		•
  • Q : Structure of Interest rates Which

    Which determines the shape of the term structure of Interest rates?

    		•