CIRA Valuation Methods & Asset Assessment Flashcards

In distressed M&A, a '363 sale' under the Bankruptcy Code allows assets to be sold:

Answer: Free and clear of most liens, claims, and encumbrances with court approval

Section 363 of the Bankruptcy Code enables a debtor to sell assets outside the ordinary course of business free and clear of liens, subject to court approval and a bidding process.

When valuing accounts receivable in a distressed scenario, a CIRA would most likely:

Answer: Apply an aging analysis discount reflecting collection risk and likely write-offs

An aging analysis identifies receivables that are past due and at higher risk of non-collection, allowing appropriate haircuts to reflect realistic recovery rates.

Which of the following best defines 'goodwill' in the context of a distressed business valuation?

Answer: The excess of enterprise value over the fair value of identifiable net tangible and intangible assets

Goodwill represents value that cannot be attributed to specific identifiable assets, often arising from brand, customer loyalty, or synergies in excess of tangible net asset value.

A CIRA reviewing a debtor's 13-week cash flow forecast would primarily evaluate it to determine:

Answer: Whether the debtor has sufficient liquidity to fund operations through the restructuring process

The 13-week cash flow forecast is a near-term liquidity tool that reveals whether the debtor can meet operational obligations during the restructuring without running out of cash.

Which type of lien has the highest priority claim against a debtor's assets in most U.S. commercial lending arrangements?

Answer: First-priority perfected security interest in specific collateral

A first-priority perfected security interest gives the lender the senior-most claim against the specified collateral, ahead of all other creditors in a liquidation or reorganization.

When performing a liquidation analysis, a CIRA typically prepares a waterfall that distributes proceeds in which order?

Answer: Administrative expenses → secured claims → priority unsecured claims → general unsecured claims → equity

U.S. bankruptcy law mandates that administrative costs of liquidation are paid first, then secured creditors from collateral proceeds, then priority unsecured, then general unsecured, with equity last.