Certified Valuation Analyst (CVA) Practice Exam

What does DLOC stand for?

1. Discount for Liquidity of Cash

2. Discount for Lack of Control

3. Discount for Loss of Cash flow

4. Discount for Limited Opportunities

The correct answer is: Discount for Lack of Control

The term DLOC stands for Discount for Lack of Control. This concept is primarily used in business valuation to account for the reduced value of ownership interests in a business that do not provide the owner with effective control. When investors or analysts assess the value of minority interests in a company, they recognize that such positions lack the ability to influence decisions, strategies, or operations. Consequently, these interests are often discounted to reflect their lesser value compared to controlling interests. Understanding this discount is crucial for valuations that involve minority ownership stakes, as it helps in accurately determining the fair market value. This approach aligns with the principles of business valuation and acknowledges that control can significantly enhance the value of an ownership interest. In contrast, the other options relate to different concepts that do not accurately convey the essence of DLOC in business valuation.