CIRA Valuation Methods & Asset Assessment Flashcards

Which valuation approach estimates a company's value based on the present value of its projected future cash flows?

Answer: Discounted Cash Flow (DCF)

The DCF approach values a business by discounting its expected future free cash flows back to the present using an appropriate discount rate.

In a distressed valuation context, the 'orderly liquidation value' (OLV) typically differs from 'forced liquidation value' (FLV) because:

Answer: OLV allows adequate time to market and sell assets, yielding higher proceeds

OLV assumes a reasonable marketing period, allowing sellers to find willing buyers and thus recover more value than a forced, time-constrained sale.

When applying the market approach to valuing a distressed company, a CIRA professional would most likely use:

Answer: Comparable company multiples adjusted for distress discount

Comparable company multiples are typically adjusted downward to reflect the higher risk and uncertainty associated with distressed situations.

Which of the following best describes 'enterprise value' (EV) in a restructuring analysis?

Answer: Total value of the business to all capital providers, including debt and equity

Enterprise value represents the total value of the firm to all stakeholders—debt holders, preferred equity, and common equity—and is independent of capital structure.

A CIRA is assessing a distressed manufacturer. Which factor would most significantly reduce the going-concern value relative to liquidation value?

Answer: Severe and sustained operating losses with no viable turnaround plan

Severe, sustained losses without a credible turnaround plan undermine the premise that the business can generate future cash flows exceeding liquidation proceeds.

Under the 'absolute priority rule,' which claim is paid first in a Chapter 7 liquidation?

Answer: Secured creditors to the extent of their collateral value

Secured creditors have a lien on specific collateral and are paid from the proceeds of that collateral before any unsecured claimants receive distributions.