Certified Valuation Analyst CVA Valuation Approaches and Methodologies 3

Question 1

The guideline public company method falls under which valuation approach?

Accepted Answer

Market approach

Answer

The guideline public company method derives multiples from comparable publicly traded firms, a hallmark of the market approach.

Question 2

Which multiple is most commonly used in the guideline transaction method for closely held companies?

Accepted Answer

MVIC/EBITDA

Answer

MVIC/EBITDA (market value of invested capital to EBITDA) is a widely used multiple because it is capital-structure neutral.

Question 3

When selecting guideline companies, the analyst should prioritize firms that are:

Accepted Answer

Similar in industry, size, and risk profile

Answer

Comparability hinges on similar industry, size, growth, and risk characteristics, not incidental factors.

Question 4

A control premium is typically applied when the valuation derived from public company multiples needs to reflect:

Accepted Answer

A controlling ownership interest

Answer

Public minority-trading multiples produce a minority value, so a control premium is added to reach a controlling-interest value.

Question 5

In the market approach, why is EBITDA often preferred over net income for comparison?

Accepted Answer

It removes effects of capital structure, taxes, and depreciation policy

Answer

EBITDA normalizes differences in financing, tax, and accounting policies, improving comparability across companies.

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