Deck 19: Business Valuation

Question 1

Which of the following would not be something a forensic accountant would collect when gathering information about a business?

A) Business history.
B) Key employees.
C) Supply chain.
D) Key competitors.

Answer 1

D

Question 2

Determining what an asset will sell for within a reasonable time, in an open market, with a willing buyer, with normal means of consideration, and with seller who are both fully informed and motivated is called its:

A) Market Value.
B) Replacement Value.
C) Fundamental Value.
D) Fair Market Value.

Answer 2

D

Question 3

How is the American Society of Appraisers (ASA) different from the Appraisal Foundation?

A) The ASA is a governmental agency and the Appraisal Foundation is a private organization.
B) The ASA is a private organization and the Appraisal Foundation is a governmental agency.
C) The ASA accepts individuals whereas the Appraisal Foundation only accepts affiliate organizations.
D) The ASA only accepts affiliate organizations whereas the Appraisal Foundation accepts individuals.

Answer 3

C

Question 4

What is business valuation?

A) A discipline that deals with the appraisal of various types of financial assets.
B) An art form that uses part industry data and part defendable logic to determine a businesses value.
C) Idiosyncratic factors that uniquely affect the risk of a single business.
D) A strict set of formula prescribed by the IRS for determining the value of a business.

Question 5

When considering valuation, there are only two premise that can be considered. They are:

A) Bankruptcy and going concern.
B) Bankruptcy and liquidation.
C) Liquidation and going concern.
D) Market value and book value.

Question 6

The simplest way to describe the asset approach to valuation is:

A) Historical cost minus liabilities.
B) Assets minus liabilities.
C) Book value minus liabilities.
D) Market value minus liabilities.

Question 7

Financial reporting as defined by both U.S. and international standards is moving away from:

A) Replacement cost valuating on the balance sheet.
B) Fair value reporting on the balance sheet.
C) Historical-cost reporting on the balance sheet.
D) Book value reporting on the balance sheet.

Question 8

If a businesses assets are going to be valued with no synergistic possibility, then it is assumed:

A) That they are going to be broken into pieces and sold separately outside the business.
B) They are going to be sold as a group outside the business.
C) They are going to be sold at their salvage value.
D) They are going to be sold as a group inside of the businesses.

Question 9

If a businesses assets are going to be valuated at a high synergistic possibility, then it is assumed:

A) That they are going to be broken into pieces and sold separately outside the business.
B) They are going to be sold as a group outside the business.
C) They are going to be sold at their salvage value.
D) They are going to be sold as a group inside of the businesses.

Question 10

Who assists with education, standardization and education of business appraisers?

A) SEC.
B) DOJ.
C) IRS.
D) Independent organizations.

Question 11

Level 5 of the fair value hierarchy estimates:

A) Market values based on quoted prices for a similar asset, with adjustments made for differences between the subject asset and the similar asset.
B) Market values based on mathematical models that use directly-related market variables as indicators of market value.
C) Market values based on mathematical models that use indirectly-related market variables as indicators of market value.
D) Market values based on mathematical models that use internal business inputs as indicators of market value.

Question 12

The fundamental value of an asset can be determined by:

A) Analytical methods that seek to find the "true value" or the "underlying value" of an asset.
B) Researching its replacement value and then deducting its depreciation from it.
C) Looking at its book value on the balance sheet.
D) Reducing the cost of purchase for an asset by a MACRS table from the IRS.

Question 13

Adjustment factors apply to which of the following valuations methods?

A) Asset approach.
B) Market approach.
C) Income approach.
D) All of the above.

Question 14

What are the general requirements that business appraisers strive for?

A) Consistency.
B) Defensibility.
C) Goodwill.
D) Suitability for purpose.

Question 15

Since there 3 levels of synergy and 2 rates of speed, there is a total of ______ possible combined value premises.

A) 2.
B) 3.
C) 5.
D) 6.

Question 16

Under the market approach, the value of the asset is what the asset can be sold for in an open market within:

A) The immediate future.
B) 30 days.
C) 60 days.
D) A reasonable time frame.

Question 17

Once a replacement cost is calculated, it is customary to:

A) Adjust the price of the asset upward to account for depreciation that was deducted in the replacement calculations.
B) Adjust the price of the asset downward to account for its age.
C) Marginalize the cost calculated by current market conditions.
D) Average the cost calculated by the original cost of the asset.

Question 18

Which of the following not an adjustment factor?

A) The extent of ownership control over income-producing assets.
B) Current physical conditions.
C) Restrictions on transferability.
D) Marketability and liquidity.

Question 19

If a businesses or its assets are going to be forced liquidated, what will happen to their value?

A) It will be higher than normal sale conditions.
B) It will be lower than normal sale conditions.
C) It will be the same as normal sale conditions.
D) Assets cannot be forced to be liquidated.

Question 20

Which of the following is not a step in the process of valuation?

A) Sell a sample of the assets to test market conditions.
B) Collect and analyze information about the business.
C) Research the industry in which the business operates.
D) Study and Analyze the business's financial statements.

Question 21

Appraisal organizations that issue credentials are all a part of the U.S. Government or United Nations.

Question 22

No synergy is when the assets of a business are sold as a group but not as part of an assumed going concern.

Question 23

Projected free cash flow to equity before debt payment is sometimes called:

A) Projected free cash flow available to equity.
B) Debt-free cash flow available to equity.
C) Equity-free cash flow available to debt.
D) Pre-debt cash flow available to equity.

Question 24

The Arbitrage Pricing Theory is commonly implemented with models that use things like:

A) Inflation rates.
B) Overall business default rates.
C) Interest rates.
D) All of the above.

Question 25

Business valuators will always state their findings in a specific dollar amount and never in a dollar value range.

Question 26

The fair value hierarchy represents of a continuum, defined along the lines of relative certainty, of possibilities that may be used to estimate market value from historical data.

Question 27

Which of the following should a forensic accountant analyze on a businesses financial statements when considering business valuation?

A) Leverage.
B) Liquidity.
C) Solvency.
D) All of the above.

Question 28

Projected free cash flow available to equity (FCFE), is defined as the amount of cash available to shareholders after:

A) All liabilities are paid.
B) All assets are liquidated.
C) All expenses, reinvestment, and debt and preferred dividend payments.
D) All of the above.

Question 29

Business valuators that have the most credibility will have:

A) A college education.
B) Credentials from national or international organizations.
C) Years of experience.
D) All of the above.

Question 30

Under the market approach, the value of the asset is what the asset can be sold for in an open market within some reasonable time period.

Question 31

The Capitalized Excess Earnings Method combines which two methods?

A) Income and asset approaches.
B) Income and market approaches.
C) Asset and market approaches.
D) None of the above.

Question 32

Which of the following is not a step in calculating the Guideline Publicly Traded Company Method?

A) Average the net realizable assets of the guideline companies.
B) Adjust the financial statements of the guideline companies to make them comparable to the subject company.
C) Compute various price-based financial ratios for the guidelines companies.
D) Select guideline companies.

Question 33

There is no one right way to value an asset, and in many cases the process of assigning a single dollar value to a complex asset is as much art as it is science, although this is not something that many valuation specialists are likely to tell all their clients.

Question 34

Investment value is normally determined by analytical methods that seek to find the "true value" or the "underlying value" of an asset.

Question 35

The capitalized income method is a variation on the:

A) Asset approach.
B) Market approach.
C) Income approach.
D) Discount income method.

Question 36

Under the income approach, the value of the asset is the present value of the future economic income associated with the asset.

Question 37

Basic elements of the income assignment include identification of the specific legal property interests to be evaluated.

Question 38

When calculating the asset accumulation method, what is done with the off-balance sheet assets?

A) They are ignored.
B) They are added to the balance sheet.
C) They are subtracted from the balance sheet.
D) None of the above.

Question 39

What is the minimum number of comparable companies that should be selected when calculating Guideline Publicly Traded Company Method?

A) 3.
B) 6.
C) 12.
D) 32.

Question 40

Standard of value is defined as value that is relevant to a particular entity or individual.

Question 41

Describe at least 3 of the 6 levels of the fair value hierarchy as defined by the Financial Accounting Standards Board's Fair Value Project.

Question 42

Explain the standard of value that pertains to investment value.

Question 43

What are the three various synergistic possibilities? Describe each.

Question 44

Under the Market approach, what are assets valued at?

Question 45

What are the components of the Asset approach to valuation?

Question 46

The valuation approached of income is the value of the asset is the present value of the future economic income associated with the asset. Explain the main problem with this approach.

Question 47

Compare and contrast historical and replacement costs.

Question 48

Explain what restrictions on transferability are and how they might effect business valuation.

Question 49

Define the general process of valuating a business:

Question 50

Name at least 7 assets that might need appraisal or valuation.