CrFA CrFA Valuation & Damages Calculation 1

Question 1

Which standard of value is most commonly applied in U.S. shareholder dispute litigation?

Accepted Answer

Fair value

Answer

In shareholder disputes, courts typically apply 'fair value' as defined by state statutes, which often excludes minority and marketability discounts unlike fair market value.

Question 2

In a lost profits damages analysis, the 'but-for' scenario refers to:

Accepted Answer

The hypothetical profits the plaintiff would have earned absent the defendant's wrongful act

Answer

The but-for scenario constructs what the plaintiff's financial performance would have been had the wrongful conduct never occurred.

Question 3

When using the income approach to value a closely held business in a forensic context, the capitalization of earnings method is most appropriate when:

Accepted Answer

Earnings are expected to grow at a constant, sustainable rate

Answer

The capitalization method divides a normalized earnings stream by a capitalization rate, making it suitable when growth is stable and long-term earnings can be estimated from current levels.

Question 4

A discount for lack of marketability (DLOM) reflects:

Accepted Answer

The reduction in value because a private company interest cannot be quickly sold

Answer

DLOM accounts for the illiquidity of a private business interest compared to a publicly traded security that can be sold immediately.

Question 5

In calculating economic damages, the 'reasonable certainty' standard requires that:

Accepted Answer

The fact of damages and the amount both be proven to a reasonable degree of certainty

Answer

U.S. courts require that both the existence and the amount of damages meet the reasonable certainty standard, though the amount may be estimated with some flexibility.

CrFA - Certified Forensic Accountant Practice Test

CrFA - Certified Forensic Accountant Practice Test

CrFA CrFA Valuation & Damages Calculation 1