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Answer: A size premium is frequently added during the valuation of private companies
Private companies often require a size premium in their discount rates because they are typically smaller than public companies and face higher risks. Option B is incorrect because private companies generally have less access to debt financing. Option C is incorrect because lack of information availability typically increases, not decreases, the required rate of return due to higher information risk.
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Which of the following statements regarding discount rates for private companies compared to discount rates for public companies is most accurate?
A
A size premium is frequently added during the valuation of private companies
B
Private companies have greater access to debt financing, which tends to decrease their WACC
C
Private companies typically have a lower required rate of return due to lack of information availability