CVA Online Practice Questions and Answers

Valuation reports should contain a set of limiting conditions, and one of the typical limiting conditions is as follows:

A. Legal and estate tax factors

B. The valuation is valid only for the valuation date or dates specified herein. No other purpose is intended or should be inferred

C. Litigation over business valuation is commonplace

D. The purpose of the valuation encompasses the use to which the valuation exercise is expected to be put

1. Dividends or partnership withdrawals (i.e. current economic income). 2. Proceeds from the ultimate sale of the ownership interest or liquidation of the subject business (i.e., including any long-term appreciation in the value of the security interest itself). These two are the categories of:

A. The economic benefits that the non-controlling ownership interest holder may realize.

B. The financial benefits that the non-controlling ownership interest holder may realize.

C. The economic benefits that the controlling ownership interest holder may realize.

D. The financial benefits that the controlling stakeholder may realize.

Documentable, arm's-length, bona fide offers to buy or sell may also be useful evidence of value. Funded bona fide offers (i.e. offers for which the financing for the offer is already in place) should be gives more weight and more consideration than:

A. Past subject company changes

B. Merger and acquisition offers

C. Unfunded bone fide offers

D. Past acquisition documents by the subject company

Control shares are normally more valuable than minority shares because they contain a bundle of rights that minority shares do not enjoy. Below is a list of some of the rights. Which of the following is NOT out of such rights?

A. Appoint or change operational management

B. Determine management compensation and prerequisites

C. Set operational and strategic policy and change the course of business

D. Negotiate and consummate goodwill

The advantages of the binomial model over the Black-Scholes model and its variations include:

A. The binomial model's ability to incorporate a variety of conditions which can increase accuracy, including variations in expected volatility, dividends rates and risk-free discount rates as well as transaction costs.

B. The binomial model can be quite useful for valuing employee stock options as it is possible to include potential dilution, blackout periods, delayed vesting provisions, early exercise patterns and employee turnover in the model by increasing the number of periods and adjusting the option values at each node.

C. Binomial model does not require more computations

D. Binomial Model does not have any liquidity problem

Bishop and Schroeder make the point that lack of marketability discounts should be recognized, just as they are in Tax Court, because one spouse usually gets liquid assets while the other spouse lacks:

A. the mode of payment as it is the exchange of interests in the marital assets

B. Underlying principles that are much more consistent and broadly accepted

C. Such flexibility

D. The flexibility and safety of being able to "cash out" readily at the owner's option

The capital asset pricing model is part of a larger body of economic theory known as capital market theory. Capital market theory also includes:

A. Security analysis

B. Portfolio management theory

C. A normative theory

D. Systematic theory

A series of small stock premium studies have been developed by Roger Grabowski and David King. They use eight different measures of size for two major groups (Equity size and Company size). Which of the following is/are measure/s of company size?

A. Market value of common equity

B. Book value of common equity

C. Market value of invested capital

D. Number of employees

Most of the mechanisms for setting prices in buy-sell agreements generally fall into one or a combination of following categories EXCEPT:

A. Some type of formula based on the financial statements such as book value, some combination of such variables

B. Negotiation among the parties

C. Independent outside appraisal

D. Ambiguity as to the applicable valuation date

An intangible's deficiencies are considered curable when the prospective economic benefit of enhancing or modifying it exceeds the current cost (in terms of material, labor, and time) to change it. An intangible's deficiencies are considered incurable when:

A. The current costs of enhancing or modifying it (in terms of material, labor and time) cannot exceed the expected future economic benefits of improving it

B. The current costs of enhancing or modifying it (in terms of material, labor and time) exceed the expected future economic benefits of improving it

C. Cost encompasses all of the deficiencies

D. Reproduction cost exceeds the actual production cost