Practice Test Geeks(CDA) Certified Divorce Advisor Practice Test
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Business Valuation in Divorce Flashcards

7 cards from real CDA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Business Valuation in Divorce flashcards as text

  1. Which valuation approach estimates a business's value based on the present value of expected future earnings?

    Answer: Income approach

    The income approach values a business by discounting projected future cash flows or earnings to their present value.

  2. When valuing a closely held business in divorce, what is 'excess earnings' typically used to estimate?

    Answer: Business goodwill

    The excess earnings method estimates goodwill by identifying earnings above a fair return on tangible assets.

  3. A spouse owns a dental practice. The state uses a standard of value that reflects what a hypothetical willing buyer would pay a hypothetical willing seller. This is known as:

    Answer: Fair market value

    Fair market value is the standard price between a hypothetical willing buyer and seller, both having reasonable knowledge of facts.

  4. Which factor most directly causes a marketability discount in the valuation of a privately held business?

    Answer: Lack of a ready market to sell ownership interests

    A marketability discount reflects the reduced value of an interest that cannot be easily converted to cash due to absence of a ready market.

  5. In the context of business valuation for divorce, 'normalization adjustments' are made to:

    Answer: Remove non-recurring or owner-related anomalies from financial statements

    Normalization adjustments restate financials to reflect true economic earnings by removing personal expenses, one-time events, or above/below-market owner compensation.

  6. A business valuation expert applies a capitalization rate of 20% to normalized earnings of $200,000. What is the indicated business value?

    Answer: $1,000,000

    Value = Earnings ÷ Capitalization Rate = $200,000 ÷ 0.20 = $1,000,000.

  7. Which of the following best describes 'enterprise goodwill' in the context of divorce?

    Answer: Goodwill inherent in the business itself that would survive a change in ownership

    Enterprise goodwill is the value attributable to the business entity—its systems, brand, and customer base—that transfers with a sale.