ASA Business Valuation Methods 2

Question 1

In ASA business valuation, normalizing adjustments to financial statements are made to:

Accepted Answer

Remove non-recurring items and owner-related anomalies

Answer

Normalizing adjustments restate earnings to reflect what a hypothetical buyer would expect from the ongoing business operations.

Question 2

The discount for lack of marketability (DLOM) reflects the reduced value of:

Accepted Answer

An interest in a privately held company that cannot be quickly sold

Answer

DLOM compensates for the illiquidity of a private equity interest, as selling it takes more time and cost than selling publicly traded shares.

Question 3

Which method under the asset approach adjusts all balance sheet assets and liabilities to their fair market values?

Accepted Answer

Adjusted net asset method

Answer

The adjusted net asset method restates each asset and liability on the balance sheet to fair market value, and the difference is the entity's equity value.

Question 4

Weighted average cost of capital (WACC) is used in business valuation as the discount rate for:

Accepted Answer

Invested capital (debt-free) cash flows

Answer

WACC blends the cost of debt and equity in proportion to the capital structure and is applied to discount cash flows available to all capital providers.

Question 5

In the excess earnings method of business valuation, intangible value is estimated by capitalizing:

Accepted Answer

Earnings in excess of a fair return on tangible assets

Answer

Excess earnings are what remains after subtracting a fair return on the identified tangible assets, and capitalizing these estimates the value of intangibles.

ASA - American Society of Appraisers Certification Practice Test

ASA - American Society of Appraisers Certification Practice Test

ASA Business Valuation Methods 2