CDA Business Valuation in Divorce 2

Question 1

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

Accepted Answer

Income approach

Answer

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

Question 2

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

Accepted Answer

Business goodwill

Answer

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

Question 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:

Accepted Answer

Fair market value

Answer

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

Question 4

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

Accepted Answer

Lack of a ready market to sell ownership interests

Answer

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

Question 5

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

Accepted Answer

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

Answer

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

(CDA) Certified Divorce Advisor Practice Test

(CDA) Certified Divorce Advisor Practice Test

CDA Business Valuation in Divorce 2