ASA Business Valuation Methods

Question 1

Which standard of value is most commonly used in US federal tax matters such as estate and gift tax valuations?

Accepted Answer

Fair market value

Answer

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.

Question 2

In business valuation, the capitalization of earnings method involves dividing a benefit stream by which rate?

Accepted Answer

Capitalization rate

Answer

The capitalization rate equals the discount rate minus the expected long-term growth rate of the benefit stream.

Question 3

Which business valuation approach estimates value based on the present value of future economic benefits?

Accepted Answer

Income approach

Answer

The income approach converts anticipated future economic benefits (earnings, cash flow, dividends) into present value using a discount or capitalization rate.

Question 4

EBITDA is commonly used in business valuation as a proxy for:

Accepted Answer

Operating cash flow before capital structure and tax effects

Answer

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) approximates cash-generating ability independent of financing and accounting choices.

Question 5

A control premium in business valuation represents:

Accepted Answer

Additional value paid to obtain a controlling interest

Answer

A control premium reflects the extra amount an acquirer pays to gain control and the ability to direct the enterprise.

ASA - American Society of Appraisers Certification Practice Test

ASA - American Society of Appraisers Certification Practice Test

ASA Business Valuation Methods