CFC Financial Analysis and Valuation 3

Question 1

A CFC calculates a client's business has an EV/EBITDA multiple of 6x. If EBITDA is $2 million, the implied enterprise value is:

Accepted Answer

$12 million

Answer

Enterprise value equals the EBITDA multiple times EBITDA: 6 × $2,000,000 = $12,000,000.

Question 2

Which valuation method is typically most appropriate for capital-intensive industries like utilities or real estate?

Accepted Answer

Asset-based (net asset value) approach

Answer

Asset-based valuation is most relevant when a company's value is closely tied to its tangible assets, such as in utilities, real estate, or holding companies.

Question 3

A sensitivity analysis in financial modeling tests how the output value changes when:

Accepted Answer

One or more key assumptions are varied systematically

Answer

Sensitivity analysis systematically varies one or more input assumptions (e.g., growth rate, discount rate) to understand how much the valuation output depends on each driver.

Question 4

Return on equity (ROE) can be decomposed using the DuPont framework into:

Accepted Answer

Net profit margin × asset turnover × equity multiplier

Answer

The DuPont formula breaks ROE into profitability (net profit margin), efficiency (asset turnover), and leverage (equity multiplier = assets/equity).

Question 5

When a CFC values a privately held business for a buy-sell agreement, a 'discount for lack of marketability' (DLOM) is applied because:

Accepted Answer

Private company shares cannot be quickly sold in a liquid public market

Answer

DLOM reflects the reduced value of an ownership interest that lacks a ready, liquid market for sale, as private shares typically cannot be sold as quickly or easily as public stock.

CFC - Certified Financial Consultant Practice Test

CFC - Certified Financial Consultant Practice Test

CFC Financial Analysis and Valuation 3