Certified Valuation Analyst Market Approach and Comparable Analysis 2

Question 1

Under the Guideline Public Company Method, what is the primary reason a control premium is NOT typically added when valuing a minority interest?

Accepted Answer

Public company multiples already reflect minority, freely traded prices

Answer

Guideline public company prices reflect minority, marketable trades, so a minority interest derived from them needs no control premium.

Question 2

When selecting guideline companies, which factor is generally the MOST important for comparability?

Accepted Answer

Similar industry, products, and economic characteristics

Answer

Comparability rests on similar industry, products, markets, and economic and operational characteristics.

Question 3

A valuation analyst uses an MVIC/EBITDA multiple. What does MVIC represent?

Accepted Answer

Market value of invested capital (debt plus equity)

Answer

MVIC is the market value of invested capital, combining interest-bearing debt and equity.

Question 4

Why is an equity multiple like Price/Earnings paired with a net (after-interest) earnings figure rather than EBITDA?

Accepted Answer

Equity value reflects returns after debt service, so denominators must too

Answer

Equity (price) multiples must use earnings after interest because equity holders are paid after debt is serviced.

Question 5

In the Guideline Transaction (Merger & Acquisition) Method, the multiples derived generally indicate what level of value?

Accepted Answer

Controlling interest value

Answer

Completed M&A transactions involve sales of whole companies, so derived multiples reflect controlling interest value.

Certified Valuation Analyst Practice Test