CVA Online Practice Questions and Answers

One of the most important tools for conducting a business valuation thoroughly and on a timely basis is a proper schedule. Most first-time, or in frequent, business valuation clients (and their attorneys) tend to underestimate the amount of lead time necessary for the appraiser to prepare a through and professional opinion. Scheduling problems often arise because:

A. The client delays in committing to the project hoping that the valuation problem will go away.

B. A major change in some aspect of assignment midway through the project

C. The client is not having awareness regarding valuation standards and selection criteria

D. Of some external pressures on the client

A valuation of the assets can even be important in ___________ in which a weighted average cost of capital method is used if the analyst uses the asset base as a determinant of the amount of debt that the company can support.

A. Labor-intensive companies

B. Capital-intensive companies

C. Blue chip companies

D. Growth companies

Proprietary technology is also counted in intangibles such as, a trained and assembled workforce, special know-how, customer relationships, supplier relationships, or other intangible assets that make the company available competitors and give it earning power. Some closely held business owners call these intangibles:

A. Blue sky

B. Good will

C. Patents

D. A or B

Depletion is relatively easy to define; it is very difficult to measure. Because of:

A. Percentage depletion

B. Unrelated depletion methods

C. Reasonable estimates can be subject to wide variations

D. None of these

Let's say that a company had 100,000 shares outstanding at the beginning of the year and issued 30,000 more shares on May 1. The 100,000 shares would be outstanding for four months and the 130,000 shares for eight months, or two- thirds of the year. The weighted average number of shares outstanding for the year would be:

A. 100, 000

B. 120,000

C. 140,000

D. 180,000

Imagine that an investor in the common stock of a company has two choices, either to (1) but 100 shares of a company's common stock at $10 per share or (2) to purchase a call for $125 to purchase 100 shares at the same $10 price at the end of nine months. If the investor chooses to buy the stock, the investor must pay $1,000 immediately and is at risk for the entire $1,000 investment. If the investor chooses to purchase the call option, the investor will pay only $125 immediately and can wait until the option's expiration date to decide whether or not to buy the stock for an additional $1,000. The investor's risk is limited to $125. If the option is ____________________, the option will be exercised. If it is ____________________, the option will simply lapse.

A. In-the-money, Out-of-the-money

B. At-the-money, Out-of-the-money

C. At-the-money, In-of-the-money

D. At-the-money, At-of-the-money

A seller who does not own a security (a short seller) will simply accept price of the security

from the buyer and agree to settle with the buyer on some future date by paying him an amount equal to

the price of the security on that date. While this short sale is outstanding, the short seller will have the use,

of, or interest on, the proceeds of the sale. This is the assumption of:

A. An option market

B. Market of underlying stock in an option trading

C. Near-perfect market

D. Volatile market

Under the asset approach, the value of the corporation's investment in common stock is the common stock's fair market value on the valuation date:

A. Less the potential income taxes payable on the sale of this stock

B. Less the potential income taxes payable to hedge the stock

C. Plus the potential income taxes payable on the sale of this stock

D. Less the potential income taxes payable on short selling

It is advisable to emphasize that in the valuation of the stock of closely held corporations or the stock of corporations where market quotations are either lacking or too scarce to be recognized, all available financial data, as well as all relevant factors affecting the market value should be considered. The following factors, although not all--inclusive are fundamental and require careful analysis in each case EXCEPT:

A. The nature of the business and the history of the enterprise from its inception

B. The economic outlook in general and the condition and outlook of the specific industry in particular

C. The earning capacity of the company

D. The income-tax paying capacity of the company

"In computing the book value per share of stock, assets of the investment type should be revalued on the basis of their market price and the book value adjusted accordingly." This statement explains:

A. Weight to be accorded various factors

B. Revenue ruling

C. Average factors

D. restrictive agreements

With respect to the contents, _____________ must include:

1.

The date of the appraisal

2.

The date of the transfer

3.

The purpose of the appraisal

4.

The description of the property

5.

A description of the assumption utilized

6.

A description of the appraisal process employed, including the valuation method utilized

7.

A description of any hypothetical conditions considered etc.

A. Applicable valuation restrictions

B. Appraisal report

C. Three-year gift tax statute of limitations

D. Lapse of certain rights

Which of the following ratios demonstrate the company's ability to meet its current obligations? These can help resolve one of the common controversies in business valuation: whether the company has any assets in excess of those required for its operating needs or, conversely, whether its assets fall short of its needs.

A. Liquidity ratios

B. Activity ratios

C. Leverage rations

D. Income statement coverage ratios

The court's acceptance, rejection, or relative weight accorded to various valuation approaches and methods generally revolves around some factors. Which of the following are NOT out of those factors?

A. The type of company

B. The quality of available evidence relevant to the respective methods

C. The prospects for liquidation or continued operations

D. The subject company's industry norms

One unique aspect of the valuation provision in a Bu-Sell agreement, as opposed to other valuation problems, is the extreme uncertainty concerning when a future event that triggers a transaction under the agreement will occur. This is one of the key reasons why:

A. Is no single approach to the problem of establishing the price?

B. Is no single method for a buy-sell agreement that one can recommend as completely satisfactory for all situations

C. There is no negotiation among the parties

D. Independent outside appraisal

Which of the following is NOT out of standard categories of assets for the purposes of applying the asset accumulation method?

A. Financial assets

B. Tangible personal property

C. Real estate

D. Equity and unearned earnings