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

Asset-based methods work best for holding and asset-intensive entities whose value derives mainly from their underlying assets.

Question 2

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

Accepted Answer

Fair market value

Answer

The adjusted net asset method restates each asset and liability from book value to fair market value.

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

The excess earnings method isolates earnings above a fair return on tangible assets to value intangibles or goodwill.

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

Liquidation value equals expected net proceeds from selling assets, less disposal costs and outstanding liabilities.

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

Pure asset methods can miss intangible and going-concern value, understating worth for profitable operating businesses.

Certified Valuation Analyst Practice Test