SAEE SAEE - International Valuation Standards Questions and Answers 5 — Questions and Answers
Question 1: Under the IVS framework, 'investment value' (also called 'worth') differs from 'market value' primarily because:
- It reflects the value to a specific owner or prospective owner based on individual requirements (Correct answer)
- It is always higher than market value due to synergies
- It represents the price achievable in a forced sale
- It is determined solely by reference to comparable market transactions
Correct answer: It reflects the value to a specific owner or prospective owner based on individual requirements
Investment value is a subjective, entity-specific measure based on individual investment criteria, whereas market value is an objective, market-participant concept.
Question 2: IVS states that when using the Market Approach, the valuer must make adjustments to comparable transactions. Which of the following is NOT a typical adjustment category under IVS?
- Adjusting for the valuer's personal opinion of future market trends (Correct answer)
- Adjusting for differences in size or scale
- Adjusting for differences in time of transaction
- Adjusting for differences in geographic location
Correct answer: Adjusting for the valuer's personal opinion of future market trends
IVS requires adjustments based on objective, supportable market evidence; personal opinions of future trends are not an acceptable adjustment category.
Question 3: According to IVS, 'orderly liquidation value' assumes:
- A reasonable period to find a buyer but under compulsion to sell (Correct answer)
- An immediate forced sale with no marketing period
- A normal marketing period with no compulsion to sell
- A sale between related parties at a pre-agreed price
Correct answer: A reasonable period to find a buyer but under compulsion to sell
Orderly liquidation value allows a limited but reasonable marketing period while acknowledging the seller is under compulsion, distinguishing it from forced liquidation and market value.
Question 4: IVS 105 states that when applying the Income Approach using a Discounted Cash Flow (DCF) method, the discount rate used should reflect:
- The risks associated with the expected cash flows of the asset being valued (Correct answer)
- The valuer's firm's internal cost of capital
- The prime lending rate published by the central bank
- The client's weighted average cost of capital from their most recent annual report
Correct answer: The risks associated with the expected cash flows of the asset being valued
The discount rate under IVS must reflect the risk profile of the specific cash flows being discounted, not the client's or valuer's financing costs.
Question 5: Under IVS, which of the following best describes a 'limiting condition' in a valuation report?
- A restriction on the scope of work that may affect the valuation conclusion (Correct answer)
- A condition placed on the asset by a government authority
- A covenant restricting the use of the property by the owner
- A financial ratio threshold imposed by a lender
Correct answer: A restriction on the scope of work that may affect the valuation conclusion
A limiting condition is a constraint on the valuation process itself, such as inability to inspect the property, which may affect the reliability of the conclusion.
Question 6: IVS 104 establishes bases of value. Which of the following is identified in IVS 104 as a 'basis of value' that reflects a market concept?
- Market value (Correct answer)
- Investment value
- Equitable value
- Both market value and equitable value
Correct answer: Market value
IVS 104 identifies market value as the primary market-based concept, while investment value and equitable value are entity- or situation-specific and not purely market-derived.
Question 7: When IVS references 'highest and best use' in the context of real property, the concept requires that the use be legally permissible, physically possible, financially feasible, and:
- Maximally productive (Correct answer)
- Historically precedent
- Environmentally neutral
- Socially acceptable
Correct answer: Maximally productive
The four tests for highest and best use under IVS are: legally permissible, physically possible, financially feasible, and maximally productive.
SAEE SAEE - International Valuation Standards Questions and Answers 5
Under the IVS framework, 'investment value' (also called 'worth') differs from 'market value' primarily because: