CIRA Valuation Methods & Asset Assessment Flashcards

Which EBITDA multiple adjustment is most appropriate when valuing a distressed company relative to a healthy peer group?

Answer: Apply a discount to reflect higher risk, illiquidity, and uncertainty

Distressed companies carry elevated execution risk and uncertainty, warranting a downward adjustment to peer multiples used in the market approach.

In a Chapter 11 reorganization, the 'best interests of creditors' test requires that:

Answer: Each dissenting creditor receives at least as much as they would in a Chapter 7 liquidation

The best interests test ensures that no creditor is worse off under the reorganization plan than they would be if the debtor's assets were liquidated under Chapter 7.

When a CIRA uses the 'net realizable value' (NRV) method for inventory in distress, which adjustment is most common?

Answer: Reduce book value to reflect expected selling price less costs to complete and sell

NRV reflects the amount the distressed company can expect to actually receive from selling inventory after accounting for any additional costs needed to make the sale.

Which concept describes the minimum value a reorganization plan must provide to a class of creditors in order to cram down a dissenting class?

Answer: Absolute priority rule compliance ensuring full payment or no junior recovery

Under cramdown, a plan is fair and equitable to a dissenting class only if senior classes are paid in full before junior classes receive any distribution, per the absolute priority rule.

A CIRA professional analyzing real property in a distressed portfolio would primarily use which valuation method?

Answer: Sales comparison approach using recent comparable transactions

The sales comparison approach benchmarks the property against recent sales of similar properties, providing the most market-relevant estimate of current value.

Which metric is most commonly used to assess a distressed company's ability to service its debt from operations?

Answer: Debt Service Coverage Ratio (DSCR)

DSCR measures whether operating cash flow is sufficient to cover scheduled debt principal and interest payments, making it the primary debt serviceability metric.