CDA Business Valuation in Divorce 3

Question 1

When a spouse owns a minority interest in a private company during divorce, which discount is most likely applied?

Accepted Answer

Minority interest discount

Answer

A minority interest discount reflects the lack of control a minority owner has over business decisions, reducing the proportional value of their share.

Question 2

Which business valuation method compares a subject company to similar businesses that have recently been sold?

Accepted Answer

Guideline transaction method

Answer

The guideline transaction method uses sale prices of comparable companies as a benchmark to estimate the subject company's value.

Question 3

In divorce valuations, 'double-dipping' refers to the controversy of:

Accepted Answer

Using business income both to value the business and to calculate support obligations

Answer

Double-dipping occurs when the same income stream is used both to capitalize the business value (marital asset) and to compute ongoing support payments.

Question 4

What is the primary purpose of a 'weighted average cost of capital' (WACC) in business valuation?

Accepted Answer

To determine the discount rate reflecting the cost of all capital sources

Answer

WACC blends the cost of debt and equity capital, weighted by their proportions, and is commonly used as the discount rate in DCF analysis.

Question 5

A professional practice owned entirely by one spouse generates revenue solely because of that spouse's reputation and referral network. This value is most likely classified as:

Accepted Answer

Personal goodwill

Answer

Personal goodwill is tied to the individual owner's skills, reputation, and relationships and is generally non-transferable.

(CDA) Certified Divorce Advisor Practice Test

(CDA) Certified Divorce Advisor Practice Test

CDA Business Valuation in Divorce 3