CTA Business Valuation in Distressed Situations

Question 1

Which valuation method is most commonly used to establish 'enterprise value' in a US Chapter 11 plan of reorganization?

Accepted Answer

Comparable company analysis combined with discounted cash flow (DCF)

Answer

Book value of assets

Answer

Liquidation value only

Answer

Net asset value from the tax return

Question 2

In distressed valuation, 'orderly liquidation value' (OLV) differs from 'forced liquidation value' (FLV) in that:

Accepted Answer

OLV assumes adequate marketing time to maximize asset sale proceeds

Answer

FLV assumes more time to find buyers

Answer

OLV is always lower than FLV

Answer

OLV is used exclusively in Chapter 7 cases

Question 3

The 'going-concern premium' in a distressed business valuation represents:

Accepted Answer

The value of the assembled business above its liquidation value

Answer

The extra fee paid to the CRO

Answer

The discount applied for lack of marketability

Answer

The cost to replace all fixed assets at current market prices

Question 4

When applying a DCF to a distressed company, the discount rate should reflect:

Accepted Answer

A risk-adjusted rate that accounts for the elevated uncertainty and distress risk

Answer

The company's pre-distress cost of capital

Answer

The risk-free Treasury rate only

Answer

The interest rate on the DIP facility

Question 5

Which approach is most useful for valuing a distressed company with highly uncertain future cash flows?

Accepted Answer

Liquidation analysis provides the floor while DCF and market comps establish the range

Answer

Simple P/E multiple based on historical earnings

Answer

Net present value of the pension liability

Answer

Market capitalization divided by total debt

Question 6

In the context of distressed M&A, a '363 sale' refers to:

Accepted Answer

A court-authorized asset sale under Section 363 of the Bankruptcy Code, free and clear of liens

Answer

A sale requiring all creditors to approve

Answer

A private equity buyout outside of court

Answer

A sale of only the intellectual property of the debtor