Business Valuation Methods Flashcards
6 cards from real ASA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Business Valuation Methods flashcards as text
Which standard of value is most commonly used in US federal tax matters such as estate and gift tax valuations?
Answer: Fair market value
Fair market value — the price a willing buyer and willing seller would agree upon, both having reasonable knowledge — is the IRS-required standard for tax purposes.
In business valuation, the capitalization of earnings method involves dividing a benefit stream by which rate?
Answer: Capitalization rate
The capitalization rate equals the discount rate minus the expected long-term growth rate of the benefit stream.
Which business valuation approach estimates value based on the present value of future economic benefits?
Answer: Income approach
The income approach converts anticipated future economic benefits (earnings, cash flow, dividends) into present value using a discount or capitalization rate.
EBITDA is commonly used in business valuation as a proxy for:
Answer: Operating cash flow before capital structure and tax effects
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) approximates cash-generating ability independent of financing and accounting choices.
A control premium in business valuation represents:
Answer: Additional value paid to obtain a controlling interest
A control premium reflects the extra amount an acquirer pays to gain control and the ability to direct the enterprise.
Which of the following is a form of the market approach in business valuation?
Answer: Guideline public company method
The guideline public company method uses pricing multiples from publicly traded comparable companies to value the subject business.