Certified Valuation Analyst CVA Valuation Approaches and Methodologies 4

Question 1

The asset-based approach is generally most appropriate for valuing:

Accepted Answer

Holding or asset-intensive companies

Answer

High-growth software startups

Answer

Companies with strong intangible goodwill

Answer

Service firms with few tangible assets

Question 2

Under the adjusted net asset method, assets and liabilities are restated to:

Accepted Answer

Fair market value

Answer

Original historical cost

Answer

Tax depreciated basis

Answer

Insurance replacement only

Question 3

The excess earnings method (Treasury/IRS Revenue Ruling 68-609) is used primarily to:

Accepted Answer

Estimate the value of intangible assets or goodwill

Answer

Value publicly traded bonds

Answer

Determine the discount rate

Answer

Allocate debt among shareholders

Question 4

When a company is being valued on a liquidation basis, the asset approach should reflect:

Accepted Answer

Net proceeds after disposal costs and liabilities

Answer

Replacement cost of new assets

Answer

Going-concern goodwill

Answer

Projected future cash flows

Question 5

A limitation of the asset-based approach for an operating company is that it:

Accepted Answer

May understate value by ignoring going-concern intangibles

Answer

Always overstates goodwill

Answer

Cannot value tangible assets

Answer

Requires public market multiples

Question 6

In the excess earnings method, the capitalization rate applied to excess earnings is generally:

Accepted Answer

Higher than the rate on tangible asset earnings

Answer

Lower than the risk-free rate

Answer

Equal to zero

Answer

The same as the corporate tax rate

Question 7

Built-in capital gains tax liabilities on appreciated assets are typically:

Accepted Answer

Considered as a reduction to net asset value

Answer

Ignored in all valuations

Answer

Added to goodwill

Answer

Treated as a control premium