Acc 9993 Midterm 1-3
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9993
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Accounting
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Apr 3, 2024
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NACVA/IBA's Professional Standards refer to "Conclusion of Value" as
a. Appraisals and calculations
b. Opinions of value and estimate of value
c. Appraisal reports and specific opinion of value
d. Estimates and appraisals
The value of an interest in a closely-held business is typically considered to be equal to:
a. The past benefits that will be received from the business, projected to the present, at an
appropriate discount rate
b. The future benefits that will be received from the business, discounted to the present, at an
appropriate discount rate
c. Current year benefits
d. All of the above
e. None of the above
Which is often regarded as the single most important piece of valuation literature?
a. Revenue Ruling 59-60
b. Revenue Ruling 68-609
c. Revenue Ruling 93-12
d. Revenue Ruling 77-287
Within a business context, the concept that property has no value unless it can be exploited
essentially meas that, above all else, value is derived from:
a. A proven record of earnings capitalized at an appropriate rate of return based on the
investor's risk preference
b. Future benefits discounted to the present
c. Tangible assets that have functional use in a going concern
d. All of the above
In estimating the value of the enterprise
a. Do not create a work file to document detailsas this will land you in court and someone else
will steay your ideas.
b. Review your files, deleting all resources that you did not request specific permission to use
c. Document your work papers so that the firm you work for signs the report, which will keep
your insurance premiums lower.
d. Remember to keep the same standard of value throughout your report
As a general rule, business valuations should NOT be performed for companies that have
buy-sell agreements
a. Incorrect
b. Correct
Buy-sell agreements:
a. Cannot be based upon a formula described within the agreement
b. Always require an independent valuation
c. Never require an independent valuation
d. All of the above
e. None of the above
In generalall categories of business valuation fall under two main valuationswhich are:
a. Tax related and non-tax related
b. Fair Market Value and Investment Value determination
c. Estate tax and marital divorces
d. Purchase or sale of business
Non-tax related valuations include
a. Allocations of lump-sum purchase price
b. Estate tax
c. Employee Stock Ownership Plan (ESOP)
d. None of the above
What event in the 1920s forced the need for valuations of a closely-held business?
a. Prohibition
b. The Depression
c. The end of World War 1
d. The creation of the AICPA
What is the basic difference between an appraisal and a valuation?
a. The act or process of determining the value of a business, business ownership
interestsecurity, or intangible asset is an appraisal whereas a valuation is the process of
determining the value of gems, equipment, furnishings, and other tangible assets to be used in
determining the value of a business
b. Nothing; they are the same thing
c. An appraisal is usually for a tangible asset and a valuation is usually for stock or interest in
stock of a company or other intangible asset
d. Valuation is usually for stock or bond or other public security and an appraisal is usually for a
non-public assetstockor bond
Which factors have dramatically increased the demand for business valuation?
a. IRS requirements
b. Economic instability and age demographics
C. More marketing by NACVA
d. Increase in the number of available business valuation analysts
Which of the following statements does NOT describe "Fair Market Value?"
a. All parties to the sale have full and complete knowledge of the relevant facts
b. In order to adequately account for the expected transaction benefits, an income approach is
often considered most appropriate and functional
c. Property would exchange hands between a hypothetical willing and able buyer and a
hypothetical willing and able seller.
d. The transaction is not conducted under compulsion or duress
Which standard of value is used when preparing valuations under U.SGenerally Accepted
Accounting Principles (GAAP)?
a. Fair Market Value
b. Intrinsic Value
c. Fair Value
d. Investment Value
All buy-sell agreements do NOT necessitate an independent valuation to be performed.
a. Incorrect
b. Correct
Synergistic Value" is best defined as:
a. The ability to quickly convert property to cash at minimal cost
b. The value of future economic benefits calculated using an appropriate discount rate
c. The value that reflects the subjective relationship between a particular investor and a given
investment
d. The value an investor places on the acquisition of a stock that rounds out the investor's
portfolio diversification
"The price at which property would change hands between a willing buyer and a willing seller,
when the former is NOT under any compulsion to buy and the latter is NOT under any
compulsion to sellboth parties have reasonable knowledge of the relevant facts" reflects which
standard of value?
a. Investment Value standard
b. Fair Market Value standard
c. Fair Value standard
d. Market Value standard
Fair Value is the same as Fair Market Value.
a. Incorrect
b. Correct
If the standard of value is Fair Market Value, then:
a. The value is to a hypothetical buyer or seller
b. The value is to a particular buyer or seller
c. The cost of capital is a function of the investment not the investor
d. Both a and c
In valuation services involving mergerswhich standard of value is most generally used?
a. Investment Value
b. Fair Market Value
c. Fair Value
d. All of the above
The value to a particular investor based on individual investment requirements and expectations
is the definition of
a. Fair Market Value
b. Fair Value
c. Investment Value
d. Capitalized Value
There are three theoretical standards of valueThey are:
a. Investment ValueGoing Concern Valuc, and Fair Market Value
b. Fair Market Value, Investment Value, and Fair Value
c. Going Concern Value, Asset Value, and Fair Value
d. Asset Value, Fair Market Valueand Liquidation Value
Valuation analyses differ finder different standards of value because different underlying
assumptions lead to different conclusions.
a. Incorrect
b. Correct
What are the types of services recognized by NACVA/IBA's Professional Standards?
a. NACVA/IBA Professional Standards recognize three broad types of services, Conclusion of
Value ServicesOpinion of Value Servicesand Estimate of Value Services
b. NACVA/IBA Professional Standards recognize two broad types of services, Conclusion of
Value Services and Opinion of Value Services.
c. NACVA/IBA Professional Standards recognize two broad types of servicesConclusion of
Value and Calculation of Value
d. NACVA/IBA Professional Standards recognize two broad types of services, Conclusion of
Value Services and Estimate of Value Services
What is the definition of Fair Value?
a. The cash received for an asset or paid to transfer a liability in a transaction between market
participants at the closing date.
b. The price that would be received for an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date
c. The price that would be received for an asset or paid to transfer a liability in a transaction
between the buyer and the seller at the measurement date.
d. The price that would be received for an asset or paid to transfer a liability in a liquidation
transaction between market participants at the measurement date.
The standard used in all Federal tax matterswhether it be gift taxes, estate taxes, income taxes,
or inheritan taxes is:
a. Fair Value
b. Fair Market Value
c. Investment Value dGoing Concern Value
d. Intrinsic Value
An orderly liquidation of assets occurs when a company's assets are sold as quickly as
possible.
a. Incorrect
b. Correct
Going Concem Value may include the following:
a. A fully operational computer system
b. Equipment with a book value of zero
c. A trained work force
d. Both b and c
e. All of the above
Liquidation Value and Going Concern Value are examples of
a. Premises of Value
b. Standards of Value
c. Both a and b
d. Neither a or b
The cost to replace an asset under a particular fact situation is known as:
a. Replacement cost
b. Strategic Value
c. Fair Market Value
d. Fair Value
The definition of Fair Market Value found in Revenue Ruling 59-60 states that
a. The buyer and seller are willing and able to act
b. The buyer and seller are hypothetical
c. The buyer and seller have reasonable knowledge of the relevant facts
d. All of the above
The two main types of business valuations are:
a. Controlling and minority interest valuations
b. Tax valuations and divorce valuations
c. Capitalization and discounting method valuations
d. All of the above
Which of the following is a premise of value?
a. Going Concern Value
b. Liquidation Valuc
c. Neither a or b
d. Both a and b
Which of the following is included in the five categories of the fundamental elements of value"
used by investors?
a. Prospects for liquidity
b. Capital appreciation
c. Dividend yield
d. Both b and c
e. All of the above
Which value is typically the highest?
a. Going concern
b. Orderly liquidation
c. Forced liquidation
d. Auction value
All other things equala company would generally sell for more in an asset sale than in a stock
sale (scenario)
a. Incorrect
b. Correct
All of the following are acceptable reports under the AICPA's Statements of Standards for
Valuation Services EXCEPT:
a. Detailed
b. Estimated
c. Calculation
d. Summary
Capitalization and discount rates are always on a
a. Marketable basis
b. Non-marketable basis
c. Control basis
d. Minority basis
In generalwhen would the market pay a premium for a security interest?
a. When the buyer has no expected synergies from the entity
b. When the buyer obtains liquidity and control in the acquisition
c. When the transaction is for financing purposes
d. None of the above
The general valuation model describes Enterprise Value as all of the following EXCEPT:
a. Present value of net cash flows to creditors plus present value of net cash flows to
stockholders
b. Market capitalization plus leverage (debt)
c. Present value of net cash flows to total invested capital
d. Market value of common equity
Under an Investment Value standard, what is the term for the formula Net Cash Flow (invested
capital basis)/Required Return"
a. Enterprise Value
b. Essence of Value
c. Present Value
d. Drivers of Value
What is the difference between an opinion of value and an estimate of value?
a. An estimate of value is intended to be the most unambiguous expression of value
andtherefore, can only be expressed as a single valueAn opinion of value may be stated as a
range of values whenin the sole professional judgment of the valuation analyst, an estimate of
value cannot be stated
b. An estimate of value is the value provided verbally by the analyst before all the qualifications
are determinedwhereas an opinion of value is provided by the analyst in the reportThese two
values may be different but both are valid.
c. An opinion of value is intended to be the most unambiguous expression of value and,
therefore, can only be expressed as a single valueAn estimate of value may be stated as a
range of values when, in the sole professional judgment of the valuation analyst, an opinion of
value cannot be stated
d. An opinion of value is a single numberas calculated by the analyst; an estimate of value is a
single numberwhich is approximately midway between a range of values estimated by the
analyst
When valuing a controlling interest:
a. The Discounted Cash Flow Method cannot be used
b. Consideration of the value of invested capital is generally preferred over equity values
c. Capital Asset Pricing Model (CAPM) cannot be used because it represents minority interests
d. All of the above
Which item is true about a lack of control interest in a company?
a. No voting rights
b. Tends not to be able to set management compensation
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G. Verifiability
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J. Consistency
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