Deck 10: Valuation

Question 1

Of the following statements regarding valuation, which is NOT true?

A) Valuation is part science.
B) A valuation is always certain.
C) Valuation is part art.
D) All of the above statements are true.
E) None of the above statements are true.

Answer 1

B

Question 2

To be at arms' length means that __________.

A) There is no familial relationship.
B) One party is a subsidiary of the other.
C) The parties have no financial relationship.
D) Both A and B are correct.
E) Both A and C are correct.

Answer 2

E

Question 3

Of the following, which is not an adjustment made to determine the value of a specific ownership interest?

A) Controlling interest
B) Marketability
C) Synergistic premium
D) All of the above are adjustments
E) None of the above are adjustments

Answer 3

D

Question 4

Which of the following is an adjustment to the value of a share because it is not controlling?

A) A minority discount
B) A marketability adjustment
C) A liquidity adjustment
D) A synergistic premium
E) None of the above

Question 5

This valuation approach relies on prices that similar assets sell for in the marketplace.

A) Market approach
B) Income approach
C) Cost approach
D) Synergistic approach
E) Pratt's CPS approach

Question 6

Using this valuation method, the cost to re-create the business or asset is calculated.

A) Market approach
B) Income approach
C) Cost approach
D) Synergistic approach
E) Pratt's CPS approach

Question 7

Income or cash flow serves as the basis for the value of the business or asset when this valuation approach is used.

A) Market approach
B) Income approach
C) Cost approach
D) Synergistic approach
E) Pratt's CPS approach

Question 8

Of the following, which is a valuation method used in the market approach to measure the value of a business?

A) Price-to-ticket revenue ratio
B) Price-to-revenue ratio
C) Price-to-earnings ratio
D) Equity shares sold
E) All of the above

Question 9

This approach to valuation is also referred to as a discounted cash flow analysis or discounted cash flow approach.

A) Market approach
B) Income approach
C) Cost approach
D) Synergistic approach
E) Pratt's CPS approach

Question 10

This valuation approach is appropriate for valuing assets for which substitutes could reasonable be brought or built.

A) Market approach
B) Income approach
C) Cost approach
D) Synergistic approach
E) Pratt's CPS approach

Question 11

To be at arm's length, the parties must not have a subsidiary of the other.

Question 12

A controlling interest allows the owner to control ticket prices, team colors, team name, and logos.

Question 13

If the distribution of cash flows is based on ownership percentages, the valuation of control should be reduced.

Question 14

The minority discount is equal to the sum of 100 plus the controlling interest premium divided by the controlling interest premium.

Question 15

The control premium is generally higher for sport teams than for many other industries because of ownership benefits such as shelters from federal income tax and league revenue sharing and future expansion fees.

Question 16

Under the market multiples approach, the value of a company is determined in reference to the value of comparable firms that have been sold within a reasonably recent period of time, with appropriate adjustments for the time value of money.

Question 17

The P/R ratio provides an estimate of how much money an investor will pay for each dollar of a company's earnings and allows for comparisons of the market values of companies of various sizes.

Question 18

In a discounted cash flow analysis, cash flows are taken from the past and discounted a number of years into the future, using a suitable discount rate.

Question 19

In forecasting revenue growth, considerations must be made for expectations for new product offerings.

Question 20

An accurate DCF analysis only requires information about all of the net cash flows accounted for on the team's financial statements.