CrFA CrFA Valuation & Damages Calculation 2

Question 1

In a commercial damages case, the mitigation doctrine requires that the plaintiff:

Accepted Answer

Take reasonable steps to reduce losses caused by the defendant's wrongful act

Answer

Plaintiffs have a legal duty to make reasonable efforts to minimize their damages; failure to mitigate can reduce the recoverable amount.

Question 2

When normalizing earnings in a business valuation, a forensic accountant would most likely adjust for:

Accepted Answer

Above-market compensation paid to owner-employees

Answer

Owner-officer compensation that exceeds what an arm's-length replacement would require is added back and replaced with market-rate compensation to reflect true economic earnings.

Question 3

In a personal injury lost earnings case, a forensic accountant must discount future lost wages to present value using:

Accepted Answer

A risk-free rate reflecting the time value of money

Answer

Future lost earnings are discounted using a risk-free rate because the wages would have been earned with certainty absent the injury, not at a speculative return.

Question 4

Which method is typically used to select guideline public companies in the market approach to business valuation?

Accepted Answer

Identifying companies with similar SIC/NAICS codes, size, and business characteristics

Answer

Guideline companies are selected based on operational and financial comparability, including industry classification, revenue size, and business model similarity.

Question 5

A royalty rate in an intellectual property damages analysis is most often determined using:

Accepted Answer

The Georgia-Pacific factors

Answer

The Georgia-Pacific factors provide a 15-factor framework courts use to determine a hypothetically negotiated reasonable royalty in patent infringement cases.

CrFA - Certified Forensic Accountant Practice Test

CrFA - Certified Forensic Accountant Practice Test

CrFA CrFA Valuation & Damages Calculation 2