Certified Valuation Analyst Business Valuation Concepts 2 — Questions and Answers
Question 1: Which standard of value assumes a hypothetical willing buyer and willing seller, neither under compulsion and both reasonably informed?
- Fair market value (Correct answer)
- Investment value
- Intrinsic value
- Liquidation value
Correct answer: Fair market value
Fair market value is defined by the hypothetical willing-buyer/willing-seller construct with no compulsion and reasonable knowledge.
Question 2: Investment value differs from fair market value primarily because it reflects:
- The value to a specific owner or buyer (Correct answer)
- Forced-sale conditions
- Only tangible asset book value
- A court-mandated discount
Correct answer: The value to a specific owner or buyer
Investment value is value to a particular investor based on individual requirements and synergies, not a hypothetical party.
Question 3: The premise of value that assumes the business will continue operating into the foreseeable future is:
- Going concern (Correct answer)
- Orderly liquidation
- Forced liquidation
- Assemblage of assets
Correct answer: Going concern
Going concern premise assumes continued operation rather than cessation and sale of assets.
Question 4: Under a forced liquidation premise, value is typically LOWER than orderly liquidation because:
- Assets are sold quickly with little marketing time (Correct answer)
- Goodwill is included
- Tax shields are added
- Synergies are captured
Correct answer: Assets are sold quickly with little marketing time
Forced liquidation compresses the selling timeline, reducing prices versus an orderly process.
Question 5: Intrinsic (fundamental) value is best described as the value an analyst concludes based on:
- Analysis of the company's true underlying characteristics (Correct answer)
- The last transaction price
- Replacement cost of fixed assets only
- The seller's asking price
Correct answer: Analysis of the company's true underlying characteristics
Intrinsic value reflects an analyst's judgment of true worth from fundamentals, independent of current market price.
Question 6: Which document is the foundational IRS guidance listing the eight factors to consider in valuing closely held stock?
- Revenue Ruling 59-60 (Correct answer)
- ASC 805
- IRC Section 1031
- SSVS No. 1
Correct answer: Revenue Ruling 59-60
Revenue Ruling 59-60 enumerates the eight key factors for valuing closely held company shares.
Question 7: The level of value representing a noncontrolling interest in a privately held company, after both a control and marketability adjustment, is the:
- Nonmarketable minority interest level (Correct answer)
- Control marketable level
- Strategic control level
- As-if-freely-traded minority level
Correct answer: Nonmarketable minority interest level
The lowest of the value levels reflects a minority position that also lacks ready marketability.
Certified Valuation Analyst Business Valuation Concepts 2
Which standard of value assumes a hypothetical willing buyer and willing seller, neither under compulsion and both reasonably informed?