CIRA CIRA Valuation Methods & Asset Assessment

Question 1

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

Accepted Answer

Discounted Cash Flow (DCF)

Answer

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

Question 2

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

Accepted Answer

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

Answer

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

Question 3

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

Accepted Answer

Comparable company multiples adjusted for distress discount

Answer

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

Question 4

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

Accepted Answer

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

Answer

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.

Question 5

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

Accepted Answer

Severe and sustained operating losses with no viable turnaround plan

Answer

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

(CIRA) Certified Insolvency & Restructuring Advisor Practice Test

(CIRA) Certified Insolvency & Restructuring Advisor Practice Test

CIRA CIRA Valuation Methods & Asset Assessment