FTT Chapter Nine 2015v1 Review Questions
Fundamentals, Techniques & Theory
VALUATION ENGAGEMENT & OBTAINING INFORMATION
BUSINESS VALUATIONS: FUNDAMENTALS, TECHNIQUES AND THEORY (FT&T)
CHAPTER 9 REVIEW QUESTIONS
© 1995–2015 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training.
Chapter Nine – 27 2015.v1
VALUATION ENGAGEMENT AND OBTAINING INFORMATION
Fundamentals, Techniques & Theory
FT&T CHAPTER REVIEW QUESTIONS Chapter 9: Defining the Valuation Engagement and Obtaining the Necessary Information 1.
External information includes all of the following EXCEPT: a. b. c. d.
2.
What is the main purpose of obtaining external information? a. b. c. d.
3.
General Economic Information General Industry Information Local and Regional Economic and Industry Information History, nature and organization of the subject company
To provide the analyst with the most recent 5 years of financial information To gain an understanding of the company’s operations and its products or services To give the analyst knowledge of any outside factors that may directly or indirectly affect the future operations of the subject company To comply with the report writing standards as set forth in the Professional Standards
The valuation engagement checklist for Adler-Cottino Wood Furniture, Inc. is found in Chapter 10. What Purpose, Standard, and Premise of Value (in that order) were determined for this case? a. b. c. d.
FMV, Controlling Interest and Arms-Length Transaction Related Party, Estate and Going concern Buy-Sell, Capitalization of Earnings, Net Asset Value Estate Tax valuation for Form 706, FMV and Going Concern
4.
What is the valuation analyst’s main objective when gathering internal information? a. To examine historical and projected financial data including Financial Statements, Income Tax Returns, and Budgets b. To keep abreast of changing general economics to ascertain how it may impact the assumptions that are made during the valuation process c. To gain an adequate understanding of the subject company’s operational management and earnings ability d. To examine the current location(s) and physical condition of the subject company’s facilities and operational assets
5.
The Market Approach for valuing businesses utilizes information from Specific Comparable Companies. In order for a company to be truly comparable it must share all of the following characteristics with the subject company EXCEPT: a. b. c. d.
Companies must have similar capital structures Companies must have the same number of stockholders Companies must be of similar size, relative to sales volume and total assets Companies must have similar competitive positions within the industry
28 – Chapter Nine 2015.v1
© 1995–2015 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training.
Fundamentals, Techniques & Theory
6.
Independence of the valuator will be impaired if: a. b. c. d.
7.
Purpose, ownership interest, and profitability of the subject entity Purpose, valuation date, and valuation approach to be utilized Purpose, ownership interest, and valuation date Ownership interest, report date, and valuation approach
Before starting an engagement, the valuation analyst must obtain an engagement letter. a. b.
9.
The member who performs the appraisal or the member’s firm prepares the tax return of the subject entity The member or the member’s firm performs an audit of the subject company’s financial statement Your neighbor’s best friend owns 100% of the subject company The member or member’s firm performs a compilation of the subject company’s financial statement
When defining the engagement the valuation analyst should identify: a. b. c. d.
8.
VALUATION ENGAGEMENT & OBTAINING INFORMATION
True False
In a litigation engagement, a valuation analyst should be independent and objective; if an attorney wants the valuation analyst to give a specific and tailored answer, this will not impair independence or objectivity. a. b.
True False
10. Of the following sources of information, which source provides data which can be specifically compared to the subject company? a. b. c. d.
U.S. Bureau of Census Federal Reserve Banks Ibbotson Valuation Yearbook BIZCOMPS
© 1995–2015 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training.
Chapter Nine – 29 2015.v1
VALUATION ENGAGEMENT AND OBTAINING INFORMATION
Fundamentals, Techniques & Theory
This page intentionally left blank.
30 – Chapter Nine 2015.v1
© 1995–2015 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training.
VALUATION ENGAGEMENT & OBTAINING INFORMATION
BUSINESS VALUATIONS: FUNDAMENTALS, TECHNIQUES AND THEORY (FT&T)
CHAPTER 9 REVIEW QUESTIONS
© 1995–2015 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training.
Chapter Nine – 27 2015.v1
VALUATION ENGAGEMENT AND OBTAINING INFORMATION
Fundamentals, Techniques & Theory
FT&T CHAPTER REVIEW QUESTIONS Chapter 9: Defining the Valuation Engagement and Obtaining the Necessary Information 1.
External information includes all of the following EXCEPT: a. b. c. d.
2.
What is the main purpose of obtaining external information? a. b. c. d.
3.
General Economic Information General Industry Information Local and Regional Economic and Industry Information History, nature and organization of the subject company
To provide the analyst with the most recent 5 years of financial information To gain an understanding of the company’s operations and its products or services To give the analyst knowledge of any outside factors that may directly or indirectly affect the future operations of the subject company To comply with the report writing standards as set forth in the Professional Standards
The valuation engagement checklist for Adler-Cottino Wood Furniture, Inc. is found in Chapter 10. What Purpose, Standard, and Premise of Value (in that order) were determined for this case? a. b. c. d.
FMV, Controlling Interest and Arms-Length Transaction Related Party, Estate and Going concern Buy-Sell, Capitalization of Earnings, Net Asset Value Estate Tax valuation for Form 706, FMV and Going Concern
4.
What is the valuation analyst’s main objective when gathering internal information? a. To examine historical and projected financial data including Financial Statements, Income Tax Returns, and Budgets b. To keep abreast of changing general economics to ascertain how it may impact the assumptions that are made during the valuation process c. To gain an adequate understanding of the subject company’s operational management and earnings ability d. To examine the current location(s) and physical condition of the subject company’s facilities and operational assets
5.
The Market Approach for valuing businesses utilizes information from Specific Comparable Companies. In order for a company to be truly comparable it must share all of the following characteristics with the subject company EXCEPT: a. b. c. d.
Companies must have similar capital structures Companies must have the same number of stockholders Companies must be of similar size, relative to sales volume and total assets Companies must have similar competitive positions within the industry
28 – Chapter Nine 2015.v1
© 1995–2015 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training.
Fundamentals, Techniques & Theory
6.
Independence of the valuator will be impaired if: a. b. c. d.
7.
Purpose, ownership interest, and profitability of the subject entity Purpose, valuation date, and valuation approach to be utilized Purpose, ownership interest, and valuation date Ownership interest, report date, and valuation approach
Before starting an engagement, the valuation analyst must obtain an engagement letter. a. b.
9.
The member who performs the appraisal or the member’s firm prepares the tax return of the subject entity The member or the member’s firm performs an audit of the subject company’s financial statement Your neighbor’s best friend owns 100% of the subject company The member or member’s firm performs a compilation of the subject company’s financial statement
When defining the engagement the valuation analyst should identify: a. b. c. d.
8.
VALUATION ENGAGEMENT & OBTAINING INFORMATION
True False
In a litigation engagement, a valuation analyst should be independent and objective; if an attorney wants the valuation analyst to give a specific and tailored answer, this will not impair independence or objectivity. a. b.
True False
10. Of the following sources of information, which source provides data which can be specifically compared to the subject company? a. b. c. d.
U.S. Bureau of Census Federal Reserve Banks Ibbotson Valuation Yearbook BIZCOMPS
© 1995–2015 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training.
Chapter Nine – 29 2015.v1
VALUATION ENGAGEMENT AND OBTAINING INFORMATION
Fundamentals, Techniques & Theory
This page intentionally left blank.
30 – Chapter Nine 2015.v1
© 1995–2015 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. Used by Institute of Business Appraisers with permission of NACVA for limited purpose of collaborative training.
