CBB Business Valuation & Financial Analysis 2

Question 1

Which financial metric represents earnings before interest, taxes, depreciation, and amortization?

Accepted Answer

EBITDA

Answer

EBITDA strips out financing, tax, and non-cash charges to measure core operating profitability.

Question 2

A business broker applying the excess earnings method would first need to identify:

Accepted Answer

A reasonable owner's compensation

Answer

Excess earnings are calculated after deducting a reasonable owner's compensation from adjusted net income.

Question 3

When recasting financial statements, a broker adds back a $24,000 personal auto expense charged to the business. This adjustment is known as:

Accepted Answer

Discretionary expense normalization

Answer

Personal expenses run through the business are discretionary items that must be added back to reflect true earning power.

Question 4

The Gordon Growth Model is primarily used to value a business by:

Accepted Answer

Capitalizing a stabilized cash flow stream with a growth assumption

Answer

The Gordon Growth Model divides normalized cash flow by the capitalization rate minus the expected long-term growth rate.

Question 5

A business with $500,000 SDE and a 3.5x multiple has an indicated value of:

Accepted Answer

$1,750,000

Answer

$500,000 × 3.5 = $1,750,000 indicated value under the income approach using an SDE multiple.

(CBB) Certified Business Brokers Practice Test