CVA Online Practice Questions and Answers

1.

Pratt's stats

2.

Done deal

3.

Bizcomps

4.

IBA market database

These are the four databases devoted to:

A. Middle-market

B. Small company controlling ownership

C. Middle market and small company controlling ownership interest transactions

D. Shareholders' equity

The FASB says that, for "unobservable inputs," the valuation should include market participant assumptions about risk, even if this adjustment is different to determine. Interestingly, it breaks risk into following categories EXCEPT:

A. The risk inherent in a particular valuation technique

B. The risk inherent in inputs of the valuation technique

C. The explicit risk related to a particular valuation technique

D. The implicit risk related to a particular valuation technique

The amount of detail desired in the inventory list varies from one appraisal to another, depending upon:

A. The inventory's importance to the valuation conclusion

B. The company's write-down value

C. To the extent to which inventory accounting methods vary within particular industry

D. The amount of inventory data to be gathered

_________________ are excellent sources of statistical, analysis and projections of regional, national and international economic and financial conditions.

A. Bank reviews

B. Bank letters

C. Federal reserve bulletin

D. Economic summaries

One way is to compare the historical percentage of bad debt losses from past credit sales with the percentage current credit sales being charged to bad debt expense to see if too little or too much is currently being charged. Another approach is:

A. To compare the unearned revenue schedule allowance relative to the amount of overdue accounts

B. To compare the aged account receivable schedule allowance relative to the amount of overdue accounts

C. To compare the aged account receivable schedule allowance relative to the amount of expired accounts

D. To compare the aged account receivable schedule allowance relative to the amount of undue accounts

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

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

The remainder interest is valued:

A. By taking the security's appraised fair market value and discounting it to a present value under the IRS actuarial tables based on seller's projected remaining life.

B. By self-canceling installment note

C. By taking the security's appraised fair market value and discounting it to a present value under the IRS actuarial tables based on seller's projected remaining life.

D. By sale of a private annuity

"Fair value" means the value of the corporation's shares determined:

A. Immediately after the effectuation of the corporate actions to which the shareholder objects

B. Using customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal

C. Without discounting for lack of marketability or minority status except, if appropriate, for amendments to the articles...

D. That the majority states use the pre-1999 definition

The value of an asset is the present value of its expected returns. Specifically, you expect an asset to provide a stream of returns during the period of time you own it. To convert this estimated stream of returns to a value for the security, you must discount this stream at your required rate of return. This process requires estimates of (1) the stream of expected returns and (2) the required rate of return on the investment. Value today always equals future cash flow discounted at the opportunity cost of capital. This is actually:

A. Theory of valuation

B. Theoretical and practical soundness of the valuation approach

C. Return on investment

D. Leverage ratios