Chapter 4-combined

Qualitative Analysis CVA Exam Q&A Study Guide 15. Ratio analysis is an integral tool in trend analysis because: a. It aids in comparison of accounting periods within the company b. It aids in comparison of the subject company to other companies within the same industry during the years in question c. It is not an integral part oftrend analysis d. Both a and b 16. Ratio analysis may identify: i) strengths and weaknesses of a company; ii) how well the company IS performing; iii) identify trends a. i, ii, and iii b. i and iii c. i and ii d. ii and iii 17. Read the following statement: Capitalization/discount rates are used to convert a defined stream of earnings, income or cash flow to an indicated present value, incorporated in these rates are components which reflect the risk elements associated with an investment in a privately-held company, and the likelihood of realizing the defined stream of earnings, income, or cash flow. Which of the following is an element of risk associated with privately-held companies? a. Management ability and depth b. Income tax rate c. Competition d. Both b and c e. Both a and c 18. Referring to the rules of discovery, everything that an expert produces may be discoverable from the expert's work product. a. Incorrect b. Correct 19. The distinction between value, price, and net proceeds can be described as: price is something agreed to by the parties and generally set forth in an offer letter; net proceeds equal the actual amount of cash/assets realized from the transaction; value is the worth of something to aparticular party. a. Incorrect b. Correct 20. The estimated future benefit stream is determined based on all ofthe following criteria EXCEPT: a. What type ofbenefits will be used as a measurement of economic income b. Do we use "historical" or "projected" economic income to estimate future benefits c. What method isused to calculate the estimated future benefits d. How many years must be projected prior to calculating a terminal value 2l. The Federal Rule of Discovery Number 26 establishes that a party shall provide within 10days to other parties all of the following EXCEPT: a. Copy of any insurance agreement b. Name, address, and telephone number of expert c. Patient and/or client list of Practice Company being valued d. Compilation of any category of damage claims 30 © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl

CVAExam Q&A Study Guide Qualitative Analysis 36. What is the objective in most valuation exercises? a. To determine the net cash flows of the entity b. To determine the required return on investment c. To determine the market value of equity d. To determine earnings before interest, taxes, depreciation, and amortization (EBITDA) 37. To reach an accurate Conclusion of Value, which of the following is often part ofthe process? a. An independent appraisal of tangible assets b. Analyzing and adjusting historical financial statements c. Analyzing industry and economic data d. Deciding on the valuation approach and selecting an appropriate valuation method or methods e. All of the above 38. Which of the following statements is correct? a. A high inventory turnover and a low gross profit may indicate that a higher volume is necessary to produce a satisfactory return on total assets. b. The net fixed asset turnover ratio is crucial when valuating a service business. c. If a company's cost of sales/sales ratio is decreasing, it may indicate competition is forcing the company to cut profit margins or it may indicate the company is unable to pass its increasing costs to its customers. d. Companies with significant fixed operating costs in proportion to variable costs can better weather an economic downturn. Topical Category: 4b-Sources ofData 1. A Comparative Analysis utilizes information from two sources and can involve either a comparison of the subject company with specific comparable companies or with industry averages for a historical period of one or more years. Which two sources of the subject company are used to perform a Comparative Analysis? a. RMA and Integra b. Common-Size Analysis and Ratio Analysis c. Historical and Normalized Financial Statements d. Forecasted and Budgeted Financial Statements 2. Five years of historical fmancial statements must be used in developing a trend analysis. a. Incorrect b. Correct 3. If third-party appraisals are relied upon by a valuation analyst, professional standards, including report writing standards, require that the following be disclosed in the valuation report: a. The conclusions of the third-party appraisal b. The identity of the third-party appraiser c. Both a and b d. Neither a or b © 2013 by National Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 2013.vl 33

Qualitative Analysis CVA Exam Q&A Study Guide 18. When one uses data on the internet in a valuation assignment: a. Generally trust the validity of data provided by government agencies, if the material is clearly identified as such b. Make an exhaustive attempt to verify the data with a secondary source c. One may assume that the data is correct d. Both a and b 19. When using financial information provided by the client, which of the financial statements below would provide the least amount of assurance that the data is correct or fairly presented? a. Compiled fmancial statements b. Reviewed financial statements c. Internally prepared financial statements d. Audited financial statements 20. When using industry data obtained from Risk Management Associates' "Annual Statement Studies," owners' compensation for the target company should be adjusted to exclude all retirement benefits. a. Incorrect b. Correct 21. Which of the following databases would probably be the most helpful in fmding transactional information for valuing a medical practice? a. FDIC b. RMA c. IDA Market Data d. Hoover's 22. Which of the following isNOT considered atype of earnings used to measure the benefit stream? a. Income from operations b. Income before taxes c. Historical cash flow d. Net income (after-tax) 23. Which of the following statements is true when valuing a seasonal business at an interim period during the fiscal year? a. You would apply the actual latest twelve-month change in net working capital and short-term debt balance to the interim period financial statement. b. You could prepare a quarterly average of the last twelve months borrowing balances and net working capital and average the results to arrive at the latest twelve month average seasonal borrowing and net working capital. c. When valuing a seasonal business at an interim period during a fiscal year, you would use a Weighted Average Method of determining the benefit stream to account for the seasonality of the interim period. d. Since seasonal debt rises and falls rateably throughout the year, no adjustments to annual working capital needs would be required. 36 ©2013 by National Association ofCertified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl

CVAExam Q&A Study Guide Qualitative Analysis 13. In developing capitalization and discount rates, which of the following is not an "external" risk adjustment factor? a. Expectations of the general economy b. Existing conditions of a particular industry c. Existing conditions of a particular business d. Existing conditions of a general economy 14. Price erosion is more likely when there is a two-supplier market versus a multi-competitor market. a. Incorrect b. Correct 15. Suppose a market is in equilibrium where quantity supplied equals quantity demanded at some 'market- clearing' price. If there is some form of intervention in the market, from a regulatory authority for instance, and a price floor is established above the 'market-clearing' price then, ceteris paribus: a. The market will not clear at the new price because the quantity demanded at the new price will exceed the quantity applied b. The market will not clear at the new price because the quantity demanded at the new price will be less than the quantity supplied c. The market will still clear because buyers and sellers will adjust to the new price d. All of the above 16. Suppose a new competitor enters a market for a special computer component by infringing the patent of an existing monopolist. The new infringing competitor then begins to compete with that monopolist. How will the patent holding monopolist be damaged? a. The monopolist will not be damaged by the new competitor. b. The monopolist will have to both sell a lower quantity and lower its price. c. The monopolist will have to lower its price. d. The monopolist will sell a lower quantity. 17. Suppose that a hurricane unexpectedly wipes out half the cattle in Texas. Other things being equal, what will happen to the demand for hamburger buns? a. Itwill decrease b. It won't change c. It will increase d. All of the above 18. Suppose that adverse weather conditions unexpectedly wipe out half of the orange crop in the United States next year. Other things being equal, what will happen to the price of grapefruit? a. Itwon't change b. It will first decline and then gradually increase c. It will increase d. It will decline © 2013byNational Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 2013.vl 39

CVAExam Q&A Study Guide Quantitative Analysis 7. The "amortization benefit" relates to: a. Net income generated by an acquired asset b. The value created from recognizing amortization expense on intangible assets for tax purposes c. A deduction used in deriving the Fair Value of an acquired asset d. A Generally Accepted Accounting Principle (GAAP) required adjustment in arriving at the Fair Value of an acquired asset, per FASB's ASC 805 (formerly known as SFAS 141R) 8. The Altman Z-Score is a measure of: a. Future income b. Current income c. Overall financial health of a company d. All of the above 9. The conversion of the balance sheet and income statement line items to percentages based on total assets or total sales is often referred to as: a. Trend analysis b. Common-size c. Financial ratio analysis d. Comparative analysis 10. The flow of capital through the organization for operational, investing, and financing activities is shown on which statement? a. Balance Sheet b. Income Statement c. Statement of Cash Flows d. Statement of Stockholder's Equity 11. The sales to working capital ratio: a. Can alert the valuation analyst to a condition of under trading b. Will often highlight trends missed by the current and quick ratios c. Illustrates when a shortage of working capital exists d. None of the above 12. When an analyst is able to obtain audited Generally Accepted Accounting Principle (GAAP) compliance financial statements, normalizing adjustments will NOT be necessary because of the high level of confidence placed on these financial statements. a. Incorrect b. Correct 13. When using the Discounted Future Earnings Method, what is the commonly used and accepted number of periods to forecast the earnings base? a. Not usually more than two years b. Ten years c. Three to five years d. Not less than five years, but no more than 10years © 2013 by National Association of Certified Valuators and Analysts (NACVA). AUrights reserved. 2013.vl 45

Quantitative Analysis CVA Exam Q&A Study Guide 12. Economic fmancial statements: a. Are not useful in making forecasts b. Are essentially the same as audited financial statements under Generally Accepted Accounting Principles c. Should only be used when doing tax-related valuations d. Are necessary to project future earnings 13. Economic/normalized historical income statements are established for what main purpose(s)? a. To provide the analyst information for making comparisons b. To assist the analyst in making projections about future benefit streams c. All ofthe above d. None of the above 14. Financial statement audits provide absolute assurance the financial statements contain no material errors or misstatements. a. Incorrect b. Correct 15. For the purpose of developing a trend analysis, how many years of historical financial statements are recommended to be used? a. 3years b. 2years c. 5years d. 4 years 16. Generally Accepted Accounting Principles (GAAP) prescribes the way transactions are to be recorded with the purpose being to make the financial statements of one company comparable to another. a. Incorrect b. Correct 17. Major categories of financial ratios include: a. Loss ratios b. Activity ratios c. Performance ratios d. Both a and c e. Both b and c 18. Ratio analysis helps the analyst in addressing basic questions about abusiness including: a. Identifying relative operating risks of the company b. How well the company is doing c. Identifying strengths and weaknesses of the company d. All ofthe above 48 © 2013 by National Association ofCertified Valuators and Analysts (NACVA). All rights reserved. 2013.vl

CVA Exam Q&A Study Guide Quantitative Analysis 33. Which financial statement is most important for valuations used for M&A purposes? a. Income statement b. Statement of cash flows c. Balance sheet d. None of the above 34. Which item(s) represent potential problems for a valuator when using financial statement information of closely-held businesses? a. Tax avoidance motivations b. Relatively weak recordkeeping and bookkeeping controls c. Personal expenses intermingled d. All of the above 35. Which of the following is a Generally Accepted Accounting Principle (GAAP) that potentially does not distort true economic value? a. Conversation b. Matching principle c. Fair Value reporting d. Cost principle e. Consistency principle 36. Which of the following is an extraordinary or non-recurring item that should be adjusted when generating economic income statements? a. Contingent liabilities b. Revenue from by-products c. Gain or loss on sale of fixed assets ifnot routine transactions d. Both band c 37. Which of the following isNOT considered atangible asset? a. Cash b. Real estate c. Equipment d. Patent 38. Which of the following provides actual company documents (lO-Ks, etc.) for publicly traded guideline companies? a. Edgar b. Standard & Poor's Corporation Records c. Compustat d. Moody's 39. Which of the following statements istrue in defming Capitalized Leases? a. They are leased assets characterized as purchased assets b. They are recorded based on the premise of substance over form c. They should be disregarded in the determination of value d. Both a and b e. None of the above © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 51

Quantitative Analysis CVA Exam Q&A Study Guide 40. The definition of the internal rate of return is a rate of return added to a risk free rate to reflect the additional risk of equity instruments over risk free instruments. a. Incorrect b. Correct 41. The formula to calculate the cost of sales/sales ratio is: a. Cost of sales divided by profit b. Cost of sales multiplied by profit c. Cost of sales divided by sales d. Cost of sales multiplied by sales 42. The debt to equity ratio: a. Is the most important ratio in trend analysis b. Will show if management has judiciously balanced profit and risk c. Requires the analyst to assign ahigh risk value if the ratio is high d. None ofthe above Topical Category: 5c-Adjustments to Financial Statements 1. "Normalizing" financial statement adjustments would include possible adjustments to all of the following EXCEPT: a. Excess cash b. Trade receivables c. Officer's compensation d. Accounts payable 2. A pending lawsuit, unrecorded pension liabilities, and capital gains tax on unrealized appreciation of assets are what type of normalized adjustments? a. Non-operating adjustments b. Non-recurring adjustments c. Contingent liability adjustments d. Timing adjustments 3. All normalizing adjustments made to the income statement will have a corresponding adjustment to the balance sheet. a. Incorrect b. Correct 4. All of the following are examples of normalization adjustments EXCEPT: a. Normal charges related to the company's annual corporate retreat b. Litigation fees c. Excess officers compensation d. One time divisional restructuring expense 52 © 2013 by National Association ofCertified Valuators and Analysts (NACVA). All rigbts reserved. 20l3.vl

CVA Exam Q&A Study Guide Quantitative Analysis Topical Category: 5d-Statistical Analysis 1. A Z-value (or statistic) is the: a. Probability that any observations will be +/-2 standard deviations from the mean b. Number of standard deviations that aparticular value is from the mean c. Number of variances that aparticular value is from the mean --- d. All of the above 2. After the historical financial statements have been adjusted for economic or normalizing items, the analyst should begin a thorough fmancial analysis of the adjusted financial statement data. Such analysis helps to identify all of the following trends EXCEPT: a. Where might the company be in the future b. What are the current and future management needs c. Where isthe company today d. Where has the company been 3. Which istrue about the use of financial ratios in business valuation? a. Strengths and weaknesses will be more easily identified b. Ratios make it easier to compare with other similar businesses c. Generally Accepted Accounting Principle (GAAP) adjustments are easier to make d. Both a and b e. All of the above 4. Company X has a five-year weighted average income of $15,000,000. The weighted average shares outstanding were 1,000,000, which are currently selling for $75.00 per share. The weighted average price/earnings (P/E) ratio iswhich of the following: a. 15 b. 5 c. 20 d. None ofthe above 5. For a set of data, the mean is $44.50, median $44.20, and mode $40, the distribution of this data is: a. Positively skewed b. Negatively skewed c. Symmetric d. All of the above 6. If cash flow is expected to grow in perpetuity at a constant growth rate, the model most commonly used would be: a. The single-period model using only a capitalization rate b. The multi-period model using only a capitalization rate c. The single-period model using only a discount rate d. The multi-period model using only a discount rate ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20!3.vl 61

Quantitative Analysis CVA Exam Q&A Study Guide 7. If net income is up and earnings per share have remained constant, which of the following is the likely explanation? a. The owners gave themselves abonus. b. The company bought back and retired aportion of its stock. c. The company borrowed more money. d. The company issued more shares of stock or stock equivalents during the year. 8. In general, when referring to data that are normally distributed, one standard deviation from either side of the mean contains about 95% of the observations. a. Incorrect b. Correct 9. Most discounted cash flow models generally define net cash flow as: a. The tax adjusted profits of the business b. That amount that could be extracted from the business without impairing the present or prospective operations of the business c. That amount available to creditors of the corporation d. That amount that isrepresented by the present value of the dividends distributed to shareholders 10. Normalized fmancial statements should allow the valuator to: a. Present a financial picture to reflect apredetermined answer b. To increase a valuator's fees c. Present a financial picture which represents market values d. Present a financial picture to appease the client 11. Of the following sources of industry operating ratios, which, if any, uses information compiled from tax returns? a. Troy's Almanac of Business and Industrial Financial Ratios b. Robert Morris Associates' "Annual Statement Studies" c. Financial Research Associates' Financial Studies of the Small Business d. None of the above 12. Of the following sources of information, which source provides data which can be specifically compared to the subject company? a. Ibbotson's Valuation Yearbook b. BIZCOMPS c. u.s. Bureau of Census d. Federal Reserve Banks 13. Ratio Analysis can be an effective tool to compare how well a company isperforming to industry benchmarks. a. Incorrect b. Correct 14. Ratio analysis is auseful tool for business valuations, but it isNOT an integral tool in trend analysis. a. Incorrect b. Correct 62 ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl

CVA Exam Q&A Study Guide Quantitative Analysis 15. Ratio analysis is important for the analysis of: a. Leverage and profitability b. Liquidity and leverage c. Liquidity and profitability d. Both band c e. All of the above 16. Ratio analysis requires the use of industry data because: a. It is useful to compare the subject company's ratios with the ratios of other entities in the same industry b. Some of the ratios cannot be completed without the use of industry data c. All of the ratios cannot be completed without using industry data d. None of the above 17. RMA's "Annual Statement Studies" are most appropriate for analyzing which of the following: a. Market size b. Owner's compensation c. Financial ratios d. Discount ratios e. None of the above 18. The acid test ratio: a. Measures the flow of money into and out of an organization b. Measures the degree to which fixed assets are converted into cash c. Determines yield on investment d. Is also referred to as the quick ratio 19. The correlation coefficient ranges between what values? a. -3 and +3 b. -1 and +1 c. 0 and +1 d. -1 and 0 20. The law of diminishing marginal returns reflects a situation in which adding more and more of a variable input, such as labor, to a fixed plant results in larger and larger amounts of additional output produced. a. Incorrect b. Correct 21. The preferred time period covered by aratio analysis is: a. 2 to 3years b. 1to 2 years c. 5years or more d. 3 to 4 years © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20I3.vl 63

Quantitative Analysis CVAExam Q&A Study Guide 22. The sales growth ratio: a. Is a measure of operational efficiency b. Measures the change in company sales for two different periods c. Isused to indicate positive or negative earnings growth d. Both b and c e. Both a and b 23. The valuation analyst needs historical performance data in order to: a. Decide whether or not the subject company is using the proper taxed-based accounting b. Check and see whether or not the owner is taking too much in salary c. Find whether or not national economic reality may be properly reflected in the current year data d. Analyze and compare various years in the company history to identify trends, strengths, weaknesses, and to look for potential adjustments to normalize if adjustments are necessary and/or deemed appropriate 24. The valuation analyst uses historical performance data in order to: a. Analyze and compare various years of the company's history b. To identify trends, strengths, and/or weaknesses c. To look for potential adjustments to normalize if adjustments are deemed appropriate d. All ofthe above 25. The Z Score analysis: a. Tests the probable rate of future growth in sales b. Tests the probable prospects of future insolvency c. Measures the company's working capital and total return on assets d. Measures the company's asset turnover 26. To calculate inventory turnover: a. Multiply the cost of goods sold by half the sum of beginning and ending inventory b. Divide the operating margin plus cost of goods sold by the sum of beginning inventory plus ending inventory c. Divide the sales commissions plus cost of goods sold by the ending inventory less the beginning inventory d. Divide the cost of goods sold by the sum of beginning inventory and ending inventory divided by two 27. Troy's Almanac for Business and Industry Ratios is a good source for what? a. Price to gross ratios b. Price to earnings ratios c. Business transaction data d. Industry average operating ratios and trends 28. What is the median of25, 30, 20, 31, 31, 32, 26, and 28? a. 29 b. 28 c. 30 d. 31 64 © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl

CVA Exam Q&A Study Guide Quantitative Analysis 29. When forecasting cash flows, which of the following is LEAST likely to be considered by the analyst? a. Industry factors b. Prior accounting method changes c. Tax issues d. Forecasting of capital expenditures and working capital requirements 30. When performing a comparative analysis of the subject company to other companies, which of the following would NOT be an important factor for the comparison to be meaningful? a. The comparable companies must be in the same or similar line of business. b. The comparable companies must have similar historical rates of growth. c. The comparable companies must have similar capital structures. d. The comparable companies must have the same number of owners. 31. When performing a ratio analysis comparing the subject company to other peer group companies, which ratios are commonly computed? a. Activity and performance ratios b. Leverage and liquidity ratios c. Return on investment and profitability ratios d. All ofthe above 32. Which of the following are a liquidity ratio? a. Current ratio and quick ratio b. Operating profit as apercent of sales and interest coverage ratio c. Total debt as apercent of assets and long-term debt as a percent of assets d. Accounts receivable turnover ratios and current liabilities as a percent of assets 33. Which of the following criteria is used to determine the future benefit stream? a. Income from operations on a pre-tax basis b. Earnings before interest, taxes, depreciation, and amortization (EBITDA) c. Five years of historical weighted average earnings after-tax d. The type of benefits that will be used as a measurement of economic income 34. Which of the following databases contain composite fmancial data supplied solely by financial institutions? a. RMA b. BIZCOMPS c. Pratt's Stats d. Done Deals 35. Which of the following is a type of sampling method? a. Probabilistic b. Systematic c. Stratified d. Cluster e. All of the above © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20J3.vl 6S

Quantitative Analysis CVA Exam Q&A Study Guide 36. Which of the following is generally NOT a category of ratios used to analyze fmancial statements for M&A valuation purposes? a. Liquidity ratios b. Equity ratios c. Coverage ratios d. Profitability ratios 37. Which of the following isNOT true when using historical data to value abusiness? a. Historical data is easier to defend in court. b. Historical data may need to be adjusted to reflect reality. c. Historical data most likely ispreferred by the IRS. d. Historical data always perfectly predicts the future. 38. Which of the following methods are used when providing a likely proxy of income using the Capitalization of Earnings Method? a. Unweighted average, weighted average, trend line static b. Weighted average, projected growth rate, trend line static c. Year by year forecast, projected growth rate, weighted average d. Unweighted average, weighted average, specific forecast 39. Which of the following is considered a financial leverage ratio? a. Total liabilities/Total assets b. Earnings before interest, taxes, depreciation, and amortization (EBITDA)/Sales c. Current ratio d. Net income/Stockholders' equity 40. The independent variables in regression analysis can be both quantitative and/or categorical data. a. Incorrect b. Correct 41. The standard deviation is the square root of the variance. a. Incorrect b. Correct 42. When deriving the net working capital and capital spending needs, the following accounts would be typical elements in the working capital analysis: a. Accounts receivable, securities, and inventory b. Accounts receivable, intangibles, and accumulated depreciation c. Accounts receivable, inventory, and prepaid expenses d. Cash, marketable securities, and related party note receivable 43. When the sample does NOT represent the target population, the error is called: a. Sampling error h. Non-sampling error c. Level of significance d. Confidence coefficient 66 © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl

CVA Exam Q&A Study Guide Quantitative Analysis 44. Analysis of financial ratios is a useful tool in business valuations because: a. It identifies strengths and weaknesses of the business b. It compares the company's own ratios over time c. It helps to identify risk areas d. Both a and c e. All of the above Topical Category: 5e- Types of Benefit Streams and Selection 1. A benefit stream is when the estimated future benefits are expected to grow or decline at a constant rate (for instance grow or decline by 3% per year). a. exponential b. logarithmic c. linear d. quadratic 2. A benefit stream that can be analyzed in valuing a closely-held business is: a. Cash flows b. Net income after tax c. Income from operations d. All of the above 3. A business value indication produced by focusing on unadjusted financial information and income usually relates to: a. A controlling interest b. A minority interest c. A marketable interest d. None of the above 4. After-tax net income + non-cash charges - capital expenditures - additions to net working capital + after tax interest expense. The preceding formula represents: a. Net cash flow to invested capital b. Total cash flow to marketability c. Net cash flow to equity d. None of the above 5. After-tax net income + non-cash charges - capital expenditures - additions to net working capital +/- changes in long-term debt. The preceding formula represents: a. Net cash flow to invested capital b. Total cash flow to marketability c. Net cash flow to equity d. All of the above © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl 67

Quantitative Analysis CVAExam Q&A Study Guide 6. An acceptable benefit stream to use in the application of the income approach in valuing a closely-held business is: a. Gross profit b. Cash flows c. Net income after-tax d. Both a and c e. Both band c 7. An analyst should know whether he or she is using a pretax or after-tax income stream for which of the following reasons: a. To properly calculate the discount or capitalization rate b. To adjust and appropriately match market transaction information c. To apply the correct capitalization rate to the benefit stream d. Both a and c e. All ofthe above 8. Estimated future benefits generally should be based on historical economic income when: a. The company recently lost a customer that is responsible for 30% of revenues b. Company is growing at different annual growth rates over the examination period c. Neither a or b d. Both a and b 9. Fill in the blank: is equal to the market value of all interest-bearing debt and the market value of all equity, where interest-bearing debt includes short and long-term notes payable, all long- term debt and capital lease obligations, and equity includes preferred stock, common stock, and minority interests. a. Company capital b. Gross capital c. Total invested capital d. Net invested capital 10. For most valuation purposes, the preferred economic income measure is: a. After-tax net income b. Pretax net income c. Net cash flow to equity ornet cash flow to invested capital d. Owner's discretionary cash flow 11. Generally, estimated future benefits are based on historical economic income when: a. The future benefits are linear in nature b. The future benefits stream is non-linear c. The valuation isbeing performed for a start-up or development stage company d. There is a lack of historical information 68 ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl

CVA Exam Q&A Study Guide Quantitative Analysis 12. Given the following measures of calculating profitability, which should be a denominator when the market value of invested capital is the numerator in determining a multiple? a. Gross cash flow b. Net income c. Earnings before interest, taxes, depreciation, and amortization (EBITDA) d. Pretax income 13. If a company has uneven or asymmetric cash flows, which of the following should be used to determine the cash flows? a. Simple average b. Best-case scenario c. Weighted average d. All ofthe above 14. Projected earnings are often used to estimate future income when: a. The purpose for the valuation is tax, buy-sell, or divorce b. The history represents future operations and future benefit stream is linear c. The industry changes are minimal or don't affect the subject company and it is mature d. The economic forecasts for the area of domicile do not adversely affect the subject company e. None of the above 15. Projected net cash flow normally represents the amount needed to sustain operations in the future. a. Incorrect b. Correct 16. The factors the analyst should review in order to define the benefit stream (future income) potential of a company include: a. Net income after-tax plus non-cash charges, less applicable capital expenditures, less additions to net working capital to support operations plus changes in long-term debt from borrowings required for operations less changes in long-term debt for repayments b. The need to use either earnings or cash flow as well as whether the valuation is using sellers' discretionary cash/income earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation, and amortization (EBITDA), or another type of earnings c. The method used by the listing broker to estimate the price of the business d. The amount the analyst isbeing paid for the valuation 17. The most desirable denominator for computing equity valuation multiples for an asset intensive company is: a. Earnings before interest and taxes b. Earnings before non-cash expenses c. Pretax earnings d. Net income 18. The simplest earnings stream to capitalize would be the: a. Earnings computed using the Trend Line Method b. Weighted average historical earnings after adjustments c. Unweighted average historical net earnings d. Net cash flow to equity ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20I3.vl 69

Quantitative Analysis CVA Exam Q&A Study Guide 19. The type of earnings to use in a valuation will generally depend upon which of the following: a. The average historical economic income b. Earnings before interest, taxes, depreciation, and amortization c. The level of earnings the analyst believes provides the greatest level of stability and reliability d. The historical earnings trended into the future 20. The type of earnings used with the Price to Earnings Ratio Method is: a. Gross profit of the company b. Net operating income of the company c. Net income before tax d. Net income after tax 21. The valuation analyst should consider both trend analysis and industry data when determining the overall risk of the subject company. a. Incorrect b. Correct 22. Three commonly used methods to estimate future earnings in a closely-held business are: a. Unweighted average, weighted average, and trend-line projection b. Unweighted average, weighted average, and homeostatic methods c. Trend-line static, trend-line projected, and unweighted average 23. To value equity, which of the following items are included in the cash flow-to-equity calculation? a. Changes in long-term debt b. Non-cash charges c. Adjustments to net working capital d. Both b and c e. All of the above 24. Total Invested Capital (TIC) is defined as: a. Market value of equity b. Market value of equity plus market value of debt c. Market capitalization d. Common equity plus preferred stock e. None of the above 25. Using a Weighted Average Method to determine future benefits, a valuator assigns more weight to the most recent years. This indicates: a. All of the past earnings are representative of the company's expected future benefits b. The valuator has determined that the most recent years are more indicative of the company's expected future performance c. There is no apparent trend in the historical earnings d. No existing pattern or trend would suggest that anyone year or years is more indicative than the rest of the historical data 70 © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl

CVA Exam O&A Study Guide Ouantitative Analysis 26. Value equals the benefit stream divided by a required rate of return is an example of what principle? a. Investments value principle b. Alternative principle c. Principle of substitution 27. What factors should be considered when evaluating the reasonableness of aprojected future benefit stream? a. Minority or control ownership b. Reliability of underlying assumptions c. Management ability and experience d. All of the above 28. What is the most appropriate metric to use for calculating future earnings where there appears to be a historical pattern or trend that is expected to continue into the future? a. Net cash flows to invested capital b. Net cash flows to equity c. Weighted average d. Unweighted average 29. When a company's earnings show no apparent pattern of repeating, either upward or downward, the following methodes) to use to project earnings to capitalize would be: a. Projected Growth Rate in Earnings Method b. Weighted Average Earnings Method c. Trend-line Method d. All of the above e. None of the above 30. When calculating benefit streams, which method utilizes a capitalization rate? a. Trend-line projected b. Unweighted average c. Weighted average d. Both band c e. All of the above 31. When computing a market value of invested capital (MVIC) multiple, generally all interest bearing debt is added to the market value of equity because: a. Excluding short-term debt in the MVIC numerator and including the interest income on it in the denominator distorts the multiple b. It is often difficult to distinguish between short-term and long-term debt on comparable company financial statements c. Many companies (especially small companies) treat short-term debt as arevolving line of credit d. Both a and b e. All of the above ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 71

Quantitative Analysis CVA Exam Q&A Study Guide 32. When is it best to value a company based on projected financial information? a. When the company is an emerging business b. When company management has forecasted or can reasonably estimate projected earnings c. When there is a lack of reliable historical data d. Both a and b e. All of the above 33. When placing a value on a company, which of the following is the most preferred measure of economic income to use in conjunction with the company's weighted average cost of capital? a. Net income b. Pretax income c. Net cash flow to invested capital d. Gross cash flow 34. When should a company's earnings be considered for use in measuring economic income? a. When the valuator expects that the future earnings will approximate the future net cash flows b. When calculating a terminal value for the business c. When using the Ibbotson Build-up Method to derive capitalization d. When there is an expectation of heavy borrowing for capital expenditures 35. When using an invested capital benefit stream, which of the following items are included in the cash flow-to- invested capital calculation? a. Interest expense net of the tax benefit resulting from interest as a tax deductible expense b. Adjustments to net working capital necessary to support projected operations c. Capital expenditures necessary to support projected operations d. All of the above 36. When using the income approach to estimate value, what is often the preferred measure of earnings? a. Net income b. Income from operations c. Net cash flow d. Earnings before interest, taxes, depreciation, and amortization (EBITDA) 37. Which capitalization or discount rate should be used to capitalize net income before taxes? a. Weighted average cost of capital b. After-tax net income capitalization rate c. Pretax net income capitalization rate 38. Which method of estimating expected future earnings is calculated by taking the sum of a set of values, and dividing the sum by the number of values used in deriving the sum? (Sum of Variable sINumber of Variables) a. Weighted average b. Unweighted average c. Net cash flows to equity d. Net cash flows to invested capital 72 © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl

CVA Exam Q&A Study Guide Quantitative Analysis 39. Which of the following elements is NOT added to income on a pretax basis in the discretionary earnings calculation (assuming all are applicable in the enterprise you are valuing)? a. Discretionary expenses b. Interest c. Depreciation d. Both a and c e. All of the above 40. Which of the following factors is noted in Revenue Ruling 59-60 as being "fundamental and require careful analysis in each case?" a. The amount of distributions paid to the owners b. The company's dividend-paying capacity c. The book value of the company's stock d. A company's history of paying dividends 41. Which of the following financial variables is usually considered most relevant when performing a valuation? a. Profitability b. Liquidity c. Increase in working capital d. Declining debt to equity 42. Which of the following is an example of an economic benefit? a. A future right measured in dollars b. After-tax earnings c. After-tax future cash flow d. Both a and b e. All of the above 43. Which of the following isNOT abenefit used as a measurement of economic income? a. Debt-free cash flow b. Owner's discretionary cash flow c. Earnings before interest, taxes, depreciation, and amortization (EBITDA) d. None of the above 44. Which of the following isNOT a component of net cash flows to invested capital? a. Net income after-tax, plus non-cash charges b. Addition for interest expenses (net of tax) c. Deduction for ongoing capital expenditure required to support projected operations d. Addition/deduction of changes in working capital on projected operations e. Deduction for dividends on preference shares 45. Which of the following is the most preferred measure of economic income to use with a cost of capital analysis? a. Net cash flow b. Gross cash flow c. Net income d. Pretax income © 2013by National Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 2013.vl 73

Quantitative Analysis CVA Exam Q&A Study Guide 46. Which of the following mistakes would be considered obvious when determining future cash flows? a. The analyst bases the components of cash flow on historical data and does not adjust for capital expenditures and working capital requirements to support the projected operations. b. The analyst does not consider the effects of annual economic growth. c. The analyst uses pretax earnings with an after-tax discount rate. d. The analyst uses the unweighted average instead of the weighted average historical cash flows. 47. Which of the following statements is true regarding the use of the mid-year convention of discounting or capitalizing cash flow? a. The mid-year convention recognizes cash flows paid at the end of each period and the year-end convention recognizes cash flows paid at the beginning of each period. b. The mid-year convention recognizes cash flows paid at the beginning of each period and the year-end convention recognizes cash flows paid at the end of each period. c. Use of the mid-year convention recognizes cash flows received throughout the year, but results in a lower present value than the year-end convention. d. The use of mid-year convention recognizes cash flows received throughout the year and results in a higher present value than the year-end convention. 48. Which statement is correct when earnings are selected as the type of benefits used to measure economic income? a. Ifpretax earnings are used, then the discountJcap rate must be on an after-tax basis. b. When using earnings as the benefit stream, the analyst must have determined and documented that the future earnings and net cash flow are approximately the same, and the discountJcap rate has been converted by the cash to earnings factor. c. The method of averaging historical economic income to determine the estimated future benefit stream is a specific methodology that can be used. d. Historical earnings demonstrate a trend that is expected to always continue in the future. 49. In valuing a company based on its invested capital (rather than its equity), which of the following adjustments are necessary to reconcile net income to net cash flow? a. Non-cash charges b. Adjustments to net working capital c. Changes in long-term debt d. All of the above e. Both a and b 50. "Net cash flow to equity" is also: a. Net cash flow available to equity owners b. Cash flow available to service interest bearing debt c. Generally referred to as the Direct Equity Method d. Both a and c e. All of the above 74 ©2013 by National Association ofCertified Valuators and Analysts (NACVA). All rights reserved. 20\3.vl

Valuation Approaches CVA Exam Q&A Study Guide Topical Category: 6a- Valuation Approaches 1. A common way to value most acquired internal-use computer software is the Income Approach Method. a. Incorrect b. Correct 2. A fundamental factor to be included in the analysis under the income approach includes: a. Book value of assets b. Fair market value of all assets c. Time value of money d. Value of comparable companies 3. Andy Analyst has been engaged to value Thingamajig, Inc. as of December 31, 2000. Mr. 100% Owner wants to transfer 100 of the 500 outstanding shares of common stock to his daughter. The appropriate valuation methodology that should be applied to this valuation is: a. Capitalization of earnings b. Price/earnings ratio c. Adjusted net assets d. Both a and b e. All methods listed above could be an appropriate method to value Thingamajig, Inc. 4. Assume Poker Co. has average economic earnings of $347,000, average net tangible assets of $853,000, the industry in which it operates has an average rate of return of 12%, and an appropriate capitalization rate is 20%. Using the Excess Earnings Treasury, compute any excess earnings over average annual industry earmngs. a. $244,640 b. $227,390 c. $195,320 d. All ofthe above 5. Book value is the floor value of an entity. It can be an appropriate measure of business value since it represents: a. Asset value b. Goodwill in certain instances c. Shareholder's equity d. Both a and c 76 ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl

CVA Exam Q&A Study Guide Valuation Approaches 6. Calculate the purchase price pursuant to ASC 805 (formerly known as SFAS 141R) to be used by XYZ in the 100% stock acquisition of ABC using the following data: XYZ paid $250 million cash and issued 20,000 shares of restricted stock to ABC at closing. XYZ's restricted stock value on the date of closing was $125/share. Total ABC liabilities assumed by XYZ were $118 million, which includes $35 million of accounts payable and accrued expenses, with the remainder being interest bearing long-term debt. ABC's balance sheet includes $13 million of goodwill as a non-current asset. Additional costs incurred were: $25 million in broker commissions; $25,000 for appraisals of real estate that was owned by ABC and transferred at closing; $110,000 in legal fees, of which $10,000 relate to the issuance of the 20,000 share of restricted stock from XYZ to ABC; $65,000 in payroll and related costs associated with additional staff hired by XYZ during their due diligence phase; and $90,000 in estimated professional fees relating to the purchase price allocation to be performed after closing. a. $252,500,000 b. $370,500,000 c. $351,290,000 d. $386,290,000 e. $373,290,000 7. Choose the best definition for the "theoretical value" of a particular business at any point in time: a. The value of the assets less the value of the liabilities b. The selling price less the selling costs c. The market value of the assets, both tangible and intangible d. The present value of the future earnings 8. Determine the intangible value and total value of the Leyland Corporation based on the following facts: 5 year weighted estimate of earnings is $425,000. The Fair Market Value of net tangible assets is $980,000. A reasonable rate of return, based on the composition of the assets is 12%. The capitalization rate for Leyland's excess earnings is 25%. a. Cannot determine based on information given b. The intangible value is $3,541,667 and the total value of the business is $4,521,667 c. The intangible value is $1,700,000 and the total value of the business is $2,680,000 d. The intangible value is $1,229,600 and the total value of the business is $2,209,600 9. Determining the appropriate valuation method requires an in-depth understanding of: a. Purpose of the valuation b. Standard of value c. Premise of value d. Both band c e. All ofthe above 10. For valuing a medium-sized manufacturing concern, or an interest therein, which of the following would commonly be considered the LEAST reliable market valuation method? a. Merger and Acquisition Transaction Method b. Past arm's-length sales of the company or interests in it c. Guideline Public Company Transaction Method d. Industry Rules of Thumb © 2013 by National Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 2013.vl 77

Valuation Approaches CVA Exam Q&A Study Guide 11. If an analyst determines that the earnings stream of a company is the most appropriate estimate of future benefits, in general, which earnings stream do analysts believe is the most reliable and stable? a. Net income from operations b. Net income before tax c. Net income before tax, depreciation, and amortization d. Net income 12. If the cash flows of a business were the exact same over a trailing five-year period, which of the following income based valuation approaches would be the most appropriate? a. Discounted cash flow with 10-year projections b. Discounted cash flow using varied future growth c. Capitalization of cash flow using 12% long-term growth d. Capitalization of five-year average earnings using inflationary growth e. None of the above 13. In order to value an intangible asset, the analyst should focus on: a. Tangible assets b. Earnings capacity c. Purchase price d. None of the above 14. Multi-period earnings method, binomial modeling, and option-pricing models are all examples of which approach to Fair Value under FASB's ASC 820? a. Asset approach b. Cost approach c. Market approach d. Income approach 15. One primary difference between the Capitalization of Excess Earnings Treasury Method and the Capitalization of Excess Earnings Reasonable Rate Method is: a. The Treasury Method uses capitalization rates as published in Revenue Ruling 68-609. b. The Treasury Method uses an industry return on equity for the return on net tangible assets where the Reasonable Rate Method frequently uses a borrowing cost. c. The Reasonable Rate Method uses Generally Accepted Accounting Principles (GAAP) historical net assets. d. The Treasury Method adjusts the tangible assets to Fair Market Value. 16. Only the income or market approaches to valuation are applicable in a litigation setting. a. Incorrect b. Correct 17. Present value less appropriate allowance is the method used to determine the Fair Value of what asset? a. Cash b. Accounts receivable c. Prepaid expenses d. Property, plant, and equipment 78 © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl

CVAExam Q&A Study Guide Valuation Anoroaehes 18. Pricelearnings (PIE) ratios are sometimes useful in valuing closely-held businesses. However, an inherent limitation when using a PIE ratio can be: a. PIE ratios are computed on a controlling interest b. All companies have the same financial reporting requirements c. Companies have different capital structures d. PIE ratios are computed before income tax 19. Professional practices and small businesses are most commonly valued using a market approach and a valuation multiple. a. Incorrect b. Correct 20. Revenue Ruling 54-187 was superseded by Revenue Ruling 59-60. a. Incorrect b. Correct 21. Revenue Ruling 59-60 specifically recognizes that the valuation of securities is, in essence, a prophecy as to the future. a. Incorrect b. Correct 22. The "Excess Earnings" Method is also known as: a. Formula Method b. Goodwill Method c. Treasury Method d. Both a and c 23. The Capitalization of Earnings Method is an income and asset-based approach in valuing a closely-held business. a. Incorrect b. Correct 24. The key inputs required under the income approach are: a. Fair market value, terminal value, and discount rate b. Forecast of economic income, net asset value, and discount rate c. Investment value, discount rate, and terminal value d. Forecast of economic income, discount rate, and terminal value 25. The only approach used to value intangibles is an earnings-based approach (capitalization of earnings, discounted earnings, etc.). a. Incorrect b. Correct ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 79

Valuation Approaches CVA Exam Q&A Study Guide 26. The terminal value cash flows are: a. The same as the final year forecasted b. Determined by the final year forecasted plus one years growth c. The same as the benefit stream used in the single period model d. Not used for S corporations 27. The three approaches to business valuation are the asset approach, income approach, and market approach. a. Incorrect b. Correct 28. The various business valuation formulas included in Revenue Ruling 59-60 were tied to: a. Asset values b. Earnings c. Excess earnings d. All of the above 29. There is evidence that shows public companies that are larger tend to sell at multiples higher than smaller companies. Studies also validate this occurrence is applicable to privately owned enterprises. a. Incorrect b. Correct 30. This approach assumes that we can determine the value of an ownership interest by analyzing recent sales of comparable assets: a. Market approach b. Asset-based approach c. Income approach d. All of the above 31. Using the Weighted Average Method, with year one weighted 1,year two weighted 2, and year three weighted 3, estimate the future benefit for Jennings Baker Company: Earnings in Year 1-(15,300); Year 2-32,400; Year 3-89,600. a. 53,050 b. 43,050 c. 73,050 d. 63,050 32. Valuation methods are commonly categorized by asset-based approach, market approach, and income approach. The analyst should average the results of all three approaches so as to come up with the right dollar value for the company. a. Incorrect b. Correct 80 ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20!3.vl

CVA Exam Q&A Study Guide Valuation Approaches 33. What isneeded to be able to utilize the market approach? a. Reliable data b. Adequate number of market comparables or market transactions c. Public company comparables d. All of the above e. Both a and b 34. What valuation methodologies are generally regarded as theoretically unsound? a. Discounted earnings b. Justification of purchase c. Rules of Thumb d. Guideline comparable company e. Comparative transaction 35. When should one use a Rule of Thumb as aprimary valuation method? a. Never b. Frequently c. Seldom d. Always 36. When using the income approach to value a business, a multi-period model is preferable under what circumstances? a. When the business is at the tail end of the bell curve and does not expect any future growth b. When the business has stabilized and growth is only represented by inflation c. When the business is either in an unstable condition or is growing at unusually high or variable rates d. When the business is experiencing a decline and the value of the assets is higher than the value of the income stream 37. Which of the following approaches matches a benefit stream with a rate of return to determine the present value of abusiness? a. Asset-based approach b. Income approach c. Market approach d. None of the above 38. Which of the following best describes equity value? a. Enterprise value plus interest bearing debt less cash and non-operating assets b. Enterprise value less interest bearing debt plus cash and non-operating assets c. Enterprise value plus interest bearing debt plus cash and non-operating assets d. Enterprise value less interest bearing debt less cash and non-operating assets e. None of the above 39. Which of the following does an analyst NOT consider when deciding which valuation approach or approaches to use: a. The type of business entity being valued b. The purpose of the valuation c. Who the buyer or seller is d. The earnings history of the enterprise © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vI 81

Valuation Approaches CVAExam Q&A Study Guide 40. Which of the following isNOT a generally accepted valuation approach? a. Cash flow approach b. Market approach c. Asset approach d. Income approach 41. Which of the following isNOT true about the Capitalization of Earnings Method to valuing a business? a. Does not require long-term forecasts b. Theoretically most correct c. Simple to understand and explain d. Widely used by investors 42. Which of the following methods would NOT be appropriate to use when a business has reported net losses each of the past five years? a. The Net Asset Value Method b. The Capitalization of Earnings Method c. A Market Multiple of Revenues Method d. The Discounted Future Cash Flow Method 43. Which of the following statement(s) concerning Capitalized Returns Methods (single period capitalization methods) is(are) true? a. Depending on the benefit stream, the Capitalized Returns Methods can calculate the market value of invested capital or equity b. Capitalized Returns Methods determine company's value by dividing cash flow or earnings by a capitalization rate c. Capitalized Returns Methods tend to be the most appropriate method when a company's current operations are indicative of its future operations d. Both a and c e. All of the above 44. Which of the following statements is true regarding the fact that almost all of our data, methodology, and theory is based on perfect markets? a. Since our information is based on perfect markets, we then adjust for differences such as risk, comparability, and lack of marketability to arrive at values for our subject company b. Since our information is based on perfect markets, we can assume that the comparable companies we choose are fully representative of value and do not have to consider any type of discount for lack of marketability when using the market approach c. Since our information is based on perfect markets, the "fair market value" or "market approach" is the best-suited method for valuing a subject company d. None of the above 45. Which valuation method does NOT address the operating earnings of the business and would be inappropriate to use to value intangible assets such as patents or copyrights that are typically valued based on some type of operating earnings? a. Retained Earnings Method b. Capitalization of Earnings Method c. Excess Earnings Reasonable Rate Method d. Adjusted Net Assets Method 82 © 2013by National Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 20!3.vl

CVA Exam Q&A Study Guide Valuation Approaches 46. Which valuation method takes into consideration the residual value as of the end of the projection period? a. Discounted Future Earnings Method b. Capitalization of Earnings Method c. Market Approach Method d. Price/Earnings Method 47. XYZ Company has five-year weighted average profits of $120,000. The weighted average dividend payout over this same period of time is 25%. The weighted average dividend yield rate of five comparable companies is 8%. What is the value of the company? a. $1,500,000 b. $375,000 c. $960,000 d. All of the above 48. The three basic methods for valuing minority interests are: a. Top down, horizontal, and bottom-up b. Horizontal, noncontrolling, and shareholder c. Noncontrolling, horizontal, and bottom-up d. Shareholder, horizontal, and bottom-up 49. All of the following are common errors found in valuations related to method use or misuse EXCEPT: a. Not identifying the standard of value b. Electing not to use aparticular method c. Lack of support for assumptions d. Not using an appropriate normalized earnings base 50. The Bottom-up Method specifically emphasizes: a. Size, competition, and growth of the subject company b. Compensation and perquisites of the majority shareholder c. Distributions (dividends) and proceeds to be realized on the sale of the interest d. All ofthe above 51. A company has five year weighted average after-tax net cash flows of $125,000. It has been determined that the company's discount rate is 19%, its expected short-term growth is 11%, and its long-term sustainable growth is 3%. The valuator has also determined that the company has excess cash of $25,000. What is the value of the company based on the capitalization of after-tax cash flows? a. $625,000 b. $657,895 c. $829,687 d. $909,090 52. Under the Excess Earnings/Treasury Method: a. The tangible assets are measured based on Generally Accepted Accounting Principles (GAAP) b. The company's collective intangible value (goodwill) is quantified by capitalizing earnings which exceed a reasonable rate of return on the GAAP net assets c. The rate of return used on net assets isthe same as the capitalization rate used on the excess earnings d. Both a and b e. Both a and c © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 83

Valuation Approaches CVA Exam Q&A Study Guide 53. In order to determine the value of intangible assets, an economic income statement does NOT need to be generated. a. Incorrect b. Correct 54. What are the three approaches to estimating the value of a company? a. Asset, market, and going concern b. Income, market, and tax c. Market, asset, and tax d. Asset, market, and income 55. If a subject company has negative or marginally positive projected income results in its terminal year, what method of valuing the company may be most appropriate? a. Dividend Paying Capacity Method b. Excess Earnings Method c. Net Assets (adjusted) Method d. PricelEarnings Method e. Rule of Thumb Method 56. Each of the following is a reason to value intangible assets, EXCEPT: a. Transactions b. Financing c. Taxation d. To assist in determining tangible asset values 57. The forecast horizon in the Discounted Cash Flow (DCF) Model include all of the following elements, EXCEPT: a. Expected changes in the industry affecting margins or growth b. Position of the company or industry in the business cycle c. Position of the products in their life cycle d. Management's plans for capital expenditures 58. Growth rate should: a. Equal inflation plus the real volume growth that can be achieved with additional capital investment b. Equal inflation less the real volume growth that can be achieved with additional capital investment c. Equal inflation plus the real volume of growth that can be achieved without additional capital investment d. None of the above Topical Category: 6b--Income Approach 1. A discount rate is most likely applied to which of the following: a. Invested capital b. The weighted average cost of capital c. Pretax earnings d. Forecasted annual future cash flows 84 © 2013 by National Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 20I3.vl

CVA Exam Q&A Study Guide Valuation Approaches 2. A fundamental relationship exists between rate of return from an investment and the amount of risk in the investment. Therefore: a. An investor would expect a higher rate of return from a treasury note compared to a large company stock. b. An investor would expect a higher rate of return from a six month CD compared to a five-year treasury bond. c. An investor would expect a higher rate of return from a publicly traded company compared to aprivately- held company. d. An investor would expect a higher rate of return from a publicly traded stock compared to a five-year treasury bond. 3. A sustainable growth rate is defined as 1) an earnings retention rate (plow-back ratio) multiplied by 2) the company's return on equity. a. Incorrect b. Correct 4. A valuator, using the Discounted Cash Flow Method, finds the pre-discount value of a minority interest in a company to be $500,000. Though the valuator knows the control shareholder takes out excessive compensation, no normalization adjustment was made. The level of value produced under these facts is: a. Synergistic value b. Minority, marketable value c. Minority, non-marketable value d. Control, marketable value 5. ABC Company has projected the following cash flows: Year 1: 85,000; Year 2: 105,000; Year 3: 109,000; Year 4: 115,000. The valuator has determined an appropriate discount rate is 26% and the long-term growth rate is 2%. Using the Gordon Growth Model, what is the present value of the company's terminal value? a. $175,596 b. $193,936 c. $187,096 d. $202,687 6. Although open for debate, the Market Approach is generally considered to provide what standard and premise of value: a. Fair Value b. Fair Market Value c. Book Value d. Intrinsic Value 7. ARM 34 says that a business has "goodwill" if it has gross earnings. a. Incorrect b. Correct 8. Assume the use of invested capital multiples is recommended and appropriate, we would most likely use them to derive a value in the following situation: a. 2% interest in abusiness b. 49% interest in abusiness c. 75% interest in abusiness d. None of the above; we would not use invested capital multiples for any of these ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 85

Valuation Approaches CVA Exam Q&A Study Guide 9. Assuming we are using the Pratt's Stats transaction database, which of the following generally would NOT be transferred in a stock sale? a. Excess or non-operating assets b. Trade payables c. Entire legal entity of the company d. Operating assets 10. Bell Landscape Company has the following historical earnings: Year 1 earnings $75,500; Year 2 earnings $65,200; Year 3 earnings $87,600; Year 4 earnings $90,500; Year 5 earnings $53,900. Which method of projecting earnings would appear most appropriate to estimate future benefits? a. Weighted Average Method b. Unweighted Average Method c. Trend Line-Static Method d. Gompertz Curve Method 11. BIZCOMPS database can be searched by any of the following variables EXCEPT: a. A range of sale date and sale price b. Number of company employees c. Location of the transaction d. A range of annual gross revenue 12. Capitalization/discount rates are used to convert a defined stream of earnings, income or cash flow to an indicated present value. Incorporated in these rates are components that reflect the risk elements associated with an investment in a privately-held company and the likelihood of realizing the defined stream of earnings, income, or cash flow. Which of the following is(are) an element of risk associated with privately-held companies? a. Competition b. Management depth and ability c. Income Tax Rate d. Both a and b e. All of the above 13. Capitalized returns (single period capitalization methods) determine a company's estimated value by dividing cash flow or earnings by a capitalization rate. a. Incorrect b. Correct 14. Conceptually, discounting net cash flow by the cost of capital is appropriate to owners or investors because of the options available to reinvest its distribution. a. Incorrect b. Correct 15. Discount rate equals capitalization rate. a. Incorrect b. Correct 86 © 2013 byNational Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 2013.vl

CVA Exam Q&A Study Guide Valuation Approaches 16. Examples of multiples for valuing either common equity or invested capital are: a. Market value of invested capital (MVIC)/Discount for lack of marketability (DLOM) b. Price/Cash flow c. Price/Earnings before interest, taxes, depreciation, and amortization (EBITDA) d. Both a and c e. Both b and c 17. For the Capitalized Earnings or Discounted Future Earnings Method to be utilized: a. Assets need to be restated to their Fair Market Value b. Earnings need to contribute significantly to the entity's value c. Intangible assets must be a significant portion of the value d. A controlling interest must be the security being valued 18. For the income approach to be utilized, earnings capacity needs to contribute significantly to value. a. Incorrect b. Correct 19. Future damages should be discounted to: a. The actual court date b. Future value c. Present value d. Market value 20. Future earnings, estimated by the analyst, are a key ingredient of capitalization of earnings. Therefore, the analyst should treat factory floor equipment: a. As a non-operating asset since it is already depreciated and/or amortized b. As indistinguishable as apart of the business, generating income c. As a dividend to the owner of the equipment or owner of the factory d. As a business deduction 21. GeriCo has a 10-year history of weighted average profits of $900,000 and a weighted average dividends paid of 3.5%. Comparable companies indicate a weighted average of 6.2%. The calculated value using the Dividend Payout Method is: a. 30% = $4,354,839 b. 30% = $7,258,065 c. 30% = $6,532,258 d. None of the above 22. Historical earnings are often used to estimate future income when: a. The economic forecasts for the area of domicile do not adversely affect the subject company b. Industry changes are minimal or don't affect the subject company and it is mature c. History represents future operations and the future benefit stream is linear d. All of the above ©2013 by National Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 2013.vl 87

Valuation Approaches CVA Exam Q&A Study Guide 23. If the discrete projected cash flow period is long, then the terminal value will contribute significantly more to the overall valuation. a. Incorrect b. Correct 24. Ifthe valuator expects the cash flow of abusiness to vary significantly in the future, the valuer should use: a. A market multiple applied to the weighted average future cash flows b. A Discounted Future Cash Flow Method c. The capitalized average cash flows d. None ofthe above 25. If using a Discounted Cash Flow Method to determine value, how far in the future should cash flows be projected? a. Natural business cycle ofthe company b. A number of years representative of the period in which the benefit stream is expected to vary followed by a terminal value c. At least 10years d. Five years 26. If using a Discounted Earnings Method to determine value, how far into the future should earnings be projected? a. 10years b. Through the year after a stabilized level of operations is reached c. Until profit margins return to normal after a period of unusually high or low earnings d. All of the above e. Both band c 27. In a discounted cash flow analysis, projections are often used as the basis for much of the remainder of the model. a. gross profit b. operating income c. revenue d. capital budget 28. In applying the Guideline Transaction Method, which of the following is correct: a. It isbest to include as many transactions as possible to assure that all aspects of the market are assessed b. Assure that the data for the subject company is normalized on a Generally Accepted Accounting Principles (GAAP) basis c. The subject price to earnings ratio is the most commonly used measure to compare to the guideline company d. Requires a review of the nature and background of the subject company, the industry, the economic outlook, etc. 88 © 2013by National Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 20l3.vI

CVAExam Q&A Study Guide Valuation Approaches 29. In Geri Co, the five-year weighted average historical pretax economic earnings are $1,250,000. The tax rate is 28%. The hurdle and debt rate are 12.25%. The adjusted net assets from prior year-end is $2,050,000. The cap rate applicable to this kind of company is 25% pretax. Which value of the business is correct using the Reasonable Rate of Return on Assets Method? a. $6,045,500 b. $3,995,500 c. $2,050,000 d. None of the above 30. In order to estimate present value, you need: a. A beta multiplier representing systematic or market risk b. A numerator representing the expected dollar amount of return c. A denominator representing the discount rate or cost of capital d. Both a and c e. Both b and c 31. In the Capitalization of Earnings Method, what is the most appropriate treatment for non-operating assets? a. Should be disposed of prior to the valuation b. Should be transferred out to the owner's at their Fair Market Value c. Should be treated as part of the overall operations d. Should be added to the Conclusion of Value at Fair Market Value 32. In valuing equity, which are included in the cash flow to equity calculation? a. Changes in long-term debt b. Capital expenditures c. Adjustments to net working capital d. Both band c e. All of the above 33. It is essential that a projected or forecasted economic benefit stream be clearly defined and that the discount rate used in the calculation be appropriate for that defmition of economic benefit. a. Incorrect b. Correct 34. It is essential that the economic income stream that is projected is clearly defined and that a discount rate appropriate for that definition of economic income be used in the analysis. a. Incorrect b. Correct 35. It isNOT uncommon for the terminal value to account for of the total present value. a. up to 30% b. 25% to 45% c. 50% to 70% d. over 90% ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 89

Valuation Approaches CVA Exam Q&A Study Guide 36. Net cash flow to equity will result in what type of value? a. Invested capital b. Equity c. Controlling interest d. Minority interest 37. Net cash flows should represent the most likely value for each projected period. a. Incorrect b. Correct 38. Sales-$lO,OOO,OOO; Unadjusted economic earnings-$900,000; Adjusted economic eamings-$1,500,000; Discount rate-.20; Growth rate-.03; Comparable public company information weighted average sales- $15,000,000; Price/Earnings rati0-4.5; Discount for minority interest--40%; Control Premium-35%; Fair Market Value (FMV) of tangible assets-$4,000,000; Required return on tangible assets-13%; Required return on intangible assets-29%; Owner's discretionary cash flow-$2,000,000; Discretionary cash flow multiple--4.7. Given the above facts, the "investment" value of a 100% ownership interest in this privately- held company is: a. $8,338,235 b. $9,112,500 c. $9,400,000 d. $6,176,471 e. None of the above 39. Statistical analysis, first and foremost, isperformed on a database to help identify: a. Intangible assets b. Qualitative factors to use c. "Indicators of value" empirically supported by the analysis d. All of the above 40. Terminal Value rarely accounts for the largest portion of a company's total present value. a. Incorrect b. Correct 41. The approach to value, which isbased upon present value theory, is: a. Market approach b. Income approach c. Asset approach d. None of the above 42. The BIZCOMPS database is most commonly used as areference for: a. Large company merger and acquisition transactions b. Large and small company transactions c. Isbased on business broker reported data d. Provides values for common equity 90 ©2013 by National Association ofCertified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl

CVAExam Q&A Study Guide Valuation Approaches 43. The burden of proof: a. Is on the management of the subject company to prove the "market approach" is reflective of the value of the subject company/interest in a specific engagement b. Is on the valuator to prove the "market approach" is reflective ofthe value ofthe subject company/interest in a specific engagement c. Is on the court, once the data is submitted to the court, to prove the "market approach" is reflective of the value of the subject company/interest in a specific engagement d. Is on the opposing expert to prove the "market approach" is NOT reflective of the value of the subject company/interest in a specific engagement 44. The Capital Asset Pricing Model (CAPM) and Ibbotson methods produce a capitalization rate. a. Incorrect b. Correct 45. The Capitalization of Earnings Method assumes that all of the assets, tangible or intangible, are indistinguishable parts ofthe business and does NOT attempt to separate the values of the two. a. Incorrect b. Correct 46. The Capitalization of Earnings Method is usually best used when future performance is expected to differ significantly from past performance, and "discounted methods" are best used when future performance is expected to follow the same pattern as past performance. a. Incorrect b. Correct 47. The Capitalization of Earnings Method is: a. An income based valuation approach b. Contains both an income and asset component as a valuation approach c. An asset based valuation approach d. All of the above 48. The Capitalization of Earnings Method may be appropriate to use when growth is expected to be steady and stable for: a. A service-related business b. A large manufacturing company c. A wholesale auto parts distribution center d. All of the above e. None of the above 49. The Capitalization of Earnings Method results in: a. The value of only the operating tangible assets b. The combined value of operating tangible assets, non-operating tangible assets, and operating intangible assets c. The combined value of tangible and intangible operating assets d. The combined value of operating and non-operating assets © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vI 91

Valuation Approaches CVA Exam Q&A Study Guide 50. The capitalization rate would equal the discount rate if: a. Annual future cash flow cannot be anticipated b. Cash flow is expected to decrease in the future c. Cash flow is expected to increase in the future d. The long-term growth rate of cash flow is expected to be zero into perpetuity 51. The company management has provided the following forecast of results for year X, including amounts and probability of occurrence: $150,000 (10%); $100,000 (60%); $50,000 (10%); Break-even (10%); Negative $50,000 (10%). What is the mathematical expected value of this forecast for use in a Discounted Cash Flow (DCF) Model? a. $100,000 b. $75,000 c. $50,000 d. None ofthe above 52. The Completed Transaction Method is based on: a. Feasibility Studies b. Principle of Substitution c. Principle of Return d. Gordon Growth Model 53. The definition of a forecast is: a. An estimate, (based on management determination) of the most probable financial position, results of operations, and changes in financial position for one or more future periods. b. An estimate of fmancial results based on assumptions that are not necessarily the most likely. c. An estimate of financial results based on the valuator's assumptions. d. An estimate in the form of fmancial statements that are representations of management. 54. The Discounted Future Earnings Method always results in marketable, control value. a. Incorrect b. Correct 55. The Discounted Future Earnings Method: a. Isnot recommended to be used where the capital structure is changing b. Is based on theory that total value is the present value of projected future earnings plus the value of the terminal value c. Both a and b d. Neither a or b 56. The Excess Earnings Reasonable Rate Method (formally referred to as a Safe Rate Method) is another derivative of the Excess Earnings Return on Assets Method. The Excess Earnings Reasonable Rate Method uses which of the following to determine the base earnings? a. Industry specific rate of return b. Reasonable rate of return c. Federal Reserve Rate d. Current rate for a five-year CD 92 ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20B.vl

CVA Exam Q&A Study Guide Valuation Approaches 57. The formula to calculate the present value (PV) ofa terminal value (TV) is: a. PV = TV divided by (l+i)n b. PV = TV multiplied by (1+i)n c. PV = FV divided by (l+i)n d. PV = FV multiplied by (1+i)n 58. The four commonly used sources for completed transaction data are: a. EDGAR, Pratt's Stats, Hoovers, and Done Deals b. Yahoo, Pratt's Stats, Hoovers, and Done Deals c. Hoovers, EDGAR, Pratt's Stats, and Yahoo d. Pratt's Stats, BIZCOMPS, IBA, and Done Deals 59. The Guideline Public Company Method focuses on: a. The same data as the Guideline Transaction Method b. Reflects long-term historic averages of key public company data c. The most recent fiscal year end of each public company d. Normalized fmancial information 60. The IBA database ismost similar to: a. Done Deals database b. The SEC EDGAR database c. The BIZCOMPS database d. Pratt's Stats database 61. The Ibbotson Build-Up Method derives a discount rate that is to be applied to which of the following benefit streams: a. After-tax earnings b. Pretax earnings c. Earnings before interest, taxes, depreciation, and amortization (EBITDA) d. Net cash flows 62. The Market Approach Transaction Method looks at completed sales transactions. These transactions may include all of the following EXCEPT: a. Privately-held companies purchased by publicly traded companies b. Privately-held companies purchased by privately-held companies c. Publicly traded companies purchased by publicly traded companies d. All of the above 63. The mid-year convention of discounting or capitalizing recognizes that cash flows are received throughout the year. a. Incorrect b. Correct © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 93

Valuation Approaches CVA Exam Q&A Study Guide 64. The most common multiple used for large companies in the Guideline Public Transaction Method is: a. Price to book value b. Price to revenue c. Total invested capital to earnings before interest, taxes, depreciation, and amortization d. Price to dividends 65. The present value of an investment using the capitalization formula would be $900 if the economic income were $100 with a discount rate of 15% and a growth rate of 5%. a. Incorrect b. Correct 66. The reported "sale price" using IDA data, from the seller's point of view, includes which of the following assets: a. Cash account b. Accounts receivable c. Land d. Equipment 67. The terminal year ofa company is the year it is forecasted to cease operations. a. Incorrect b. Correct 68. The Treasury Method is often referred to as an Excess Earnings Method. a. Incorrect b. Correct 69. The use of net cash flow to equity in valuing a company provides what type of indicated value? a. Value of invested capital b. Value of equity c. Value of a controlling interest d. Value of a minority interest 70. The valuation approach that isbased on present value theory isreferred to as the: a. Market approach b. Income approach c. Asset approach d. None of the above 71. The valuation multiples of comparable companies in the Market Approach Transaction Method focuses on market-based information from: a. Companies involved in actual sales or acquisition of similar companies b. Publicly-traded companies on the New York Stock Exchange c. Prior sales of company stock from previous shareholders d. C corporations but not S corporations 94 © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl

CVA Exam Q&A Study Guide Valuation Approaches 72. The value indicated by applying a capitalization rate to the net cash flow expected in the first period subsequent to the valuation date is: a. Market value b. Book value c. Net present value d. Future value 73. Two types of multiples are typically used to value a business. All of the following are multiples for common equity most often used EXCEPT: a. Price/Revenue b. Price/Gross Margin c. Price/Cash Flow d. Price/Earnings 74. Two-stage discounted cash flow (DCF) valuation model uses a discrete cash flow forecast discounted to net present value as of the valuation date plus a terminal or residual value that is discounted to net present value as of the valuation date. a. Incorrect b. Correct 75. Two-stage discounted cash flow (DCF) valuation niodels that use a discrete forecast period coupled with a terminal, residual, salvage, or continuing value: a. Does not allow the use of Capital Asset Pricing Model (CAPM) in developing a discount or capitalization rate b. Combines discounting cash flow and capitalizing a terminal value c. Is most often used when future earnings are not expected to be different from past earnings d. Does not incorporate the organization's long-term sustainable growth rate 76. Under Section 2031(b) of the Code, the essential factor when using comparable companies' stocks is: a. That the comparable stocks chosen be only those traded over-the-counter and that there is evidence of an active, free public market for the stock as of the valuation date b. That regardless of whether the comparable stocks are sold on an exchange or over-the-counter, there is evidence of an active, free public market for the stock as of the valuation date c. That the comparable stocks chosen be only those traded on an exchange and that there is evidence of an active, free public market for the stock as of the valuation date d. All of the above 77. Using the weighted average historical earnings for Jasper Company ($1,234,333), if the established discount rate is 15%, short-term growth is 7%, and long-term growth is 3%, what is the value of Jasper Company? a. $8,228,900 b. $15,429,200 c. $10,286,100 d. $10,594,700 © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 95

Valuation Approaches CVA Exam Q&A Study Guide 78. Valuation of securities is: a. Extremely predictable and easy to value b. A prophecy as to the future c. Easily attainable by use of a formula d. Based on only historical data 79. Value today always equals future cash flow discounted at the opportunity cost of capital. a. Incorrect b. Correct 80. What are some possible problems with using the Dividend Payout Method as a valuation approach? a. Family-owned businesses often payout a large portion of their profits to family members based on tax planning considerations. Other times, these payouts may be entirely discretionary b. Just because dividends may have been high in the past does not mean that same level of dividends would continue to be paid in the future c. Two companies paying out the same dividend percentage could have different capital structures d. All of the above 81. What is a capitalization rate? a. Divisor or multiplier used to convert a defmed benefit stream to present value b. The calculated external factor and internal factor multiplied by the investment factor c. Rate of return used to convert series of future income amounts to their present value d. The price/earnings ratio divided by the dividend paying capacity 82. What is the preferred measure of earnings when using the "income approach" to value a business? a. Earnings before interest and taxes (EBIT) b. Net cash flow c. Income from operations d. Net income e. Earnings before interest, taxes, depreciation, and amortization (EBITDA) 83. What will an investor seeking 10% return pay today for a $1,000 zero-coupon bond to be redeemed in 10 years? a. $139 b. $386 c. $427 d. None of the above 84. When analyzing the total expected return from debt, the yield to maturity or call date is most important. a. Incorrect b. Correct 85. When applying the discounting process, we should project all of the expected returns over the life of an investment. a. Incorrect b. Correct 96 ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl

CVA Exam Q&A Study Guide Valuation Approaches 86. When are earnings used as the type of benefits to measure economic income? a. When the valuator expects the future earnings will approximate the future net cash flows b. When the capital expenditures and changes in long-term debt to support the company's projected operations are insignificant to the earnings c. When the net working capital requirements are projected to be consistent with historical working capital requirements d. All of the above e. Both a and c 87. When is it best to use estimated future benefits that are based on aprojected economic income model? a. When company management has forecasted or can reasonably estimate projected earnings b. When there is a lack of reliable historical data c. When it is an emerging business d. All of the above 88. When is the weighted average of historical economic earnings most appropriately used for calculating future earnings? a. When there appears to be a general pattern that may be extrapolated into the future b. When utilizing the Capitalization of Earnings Method of valuation c. When earnings are flat and are projected to remain flat d. When preparing a valuation for estate purposes 89. When should you use the Capitalization of Earnings Method? a. Projected cash flows are available b. Expected growth rates are predictable c. Expected growth rates are unpredictable d. Company is a start up company 90. When using multiples for invested capital to derive a value for a business, the following are the most common multiples used EXCEPT: a. Market value of invested capital (MVIC)lBook Value b. MVIC/Earnings before interest, taxes, depreciation, and amortization (EBITDA) c. MVIC/Sales d. MVIC/Earnings before interest and taxes (EBIT) 91. When using the income approach and unadjusted economic earnings, what value isproduced? a. Non-marketable-minority interest value b. Non-marketable--control value c. Marketable-minority interest value d. Marketable--control value 92. When using the Pratt's Stats Database, it has been suggested by their analysts that a lower coefficient of variation indicates: a. Less dispersion and a weaker valuation multiple when compared to the other multiples b. More dispersion and a better valuation multiple when compared to the other multiples c. Less dispersion and abetter valuation multiple when compared to the other multiples d. More dispersion and a weaker valuation multiple when compared to the other multiples ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 97

Valuation Approaches CVA Exam Q&A Study Guide 93. When using the Single-Period Income Method of Valuation, which statement applies? a. The net cash flow is calculated by applying a weighted average to the prior five-year period, and then this result is divided by the capitalization rate. b. The entity value is derived by dividing the benefit stream by the capitalization rate and adding the terminal value to the result. c. The entity value is derived by dividing the benefit stream by the industry rate of return. d. The present value of net cash flow is derived by dividing the single-period cash flow forecast by a growth adjusted discount rate. 94. When valuing an equity interest, what type of benefit stream will the analyst normally use as a measurement of economic income? a. After-tax earnings b. Income from operations c. Net cash flows to invested capital d. Net cash flows to equity 95. Which answer provides the best definition of "capitalization rate?" a. The divisor used to convert enterprise value into fair market value b. Any divisor (usually apercentage) used to convert income into value c. The divisor used to convert a monetary gain into present value d. The divisor used to convert the future net monetary returns into apresent value 96. Which capitalization or discount rate should be used to capitalize net cash flows to equity? a. After-tax net cash flow capitalization rate b. Weighted average cost of capital c. After-tax net cash flow discount rate d. Pretax net cash flow capitalization rate 97. Which method assumes all of the assets, tangible or intangible, are indistinguishable parts of the business, and does NOT attempt to separate the values of the two? a. Adjusted Net Asset Value Method b. Capitalization of Earnings Method c. Excess Earnings Reasonable Rate Method d. Excess Earnings Treasury Method 98. Which method is based on the theory that the total value of a business is the present value of its projected future earnings, plus the present value ofthe terminal value? a. Capitalization of Earnings Method b. Discounted Future Earnings Method c. Excess Earnings Treasury Method d. Excess Earnings Reasonable Rate Method 98 ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl

CVA Exam Q&A Study Guide Valuation Approaches 99. Which method of valuation is based upon the assumption that business operations have stabilized and that no excessive or variable growth is expected? a. Single-Period Income Capitalization Method b. Multi-Period Income Capitalization Method c. Market Approach Method d. Cost Approach Method 100. Which of the following are appropriate steps to implementing the market approach to valuation? a. Review the nature and background of the subject company and obtain the financial statements from the subject company b. Analyze and adjust the financials of the subject company, perform a search for and select appropriate completed transactions, and use the selected transactions to determine the multiples c. Select the appropriate multiples, apply the multiple to the appropriate financial indicator, determine the value of any non-operating assets, consider whether discounts or premiums should be applied, and make sanity checks using alternative methodologies d. All of the above 101.Which of the following are considered as multiples for invested capital? a. Book value/Earnings before interest, taxes, depreciation, and amortization (EBITDA) b. Price/Sales c. Earnings before interest, taxes, depreciation, and amortization (EBITDA)/Market value of invested capital (MVIC) d. Sales/Cash flow 102. Which of the following are considered the PRIMARY Market Valuation Methods? a. Guideline Company and Rule of Thumb b. Rule of Thumb and Completed Transaction Method (CTM) c. Completed Transaction Method (CTM) and Guideline Company Method d. None of the above 103.Which ofthe following is correct? The Guideline Transaction Method: a. Focuses on stock analysts' assessments of hypothetical control values in the industry b. Primarily focuses on large public company merger and acquisition transactions c. Generally focuses on smaller transactions for controlling positions in companies d. Requires that the subject company have nearly identical attributes to the guideline companies 104. Which of the following isNOT a step in the Discounted Future Earnings Method? a. Develop an appropriate discount rate b. Capitalize the benefit stream in each projected/forecasted period c. Develop a forecast of earnings d. Develop a forecast of future relevant financial variables e. Calculate the net present values of future benefits 105.Which of the following is NOT a true application of the Capitalization of Earnings Method? a. You divide next year's normalized earnings by a capitalization rate b. You divide the next five year's weighted average earnings by a capitalization rate c. You divide historical weighted average earnings by a capitalization rate d. You divide last year's earnings stream by a capitalization rate © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20\3.vl 99

Valuation Approaches CVA Exam Q&A Study Guide 106.Which of the following is NOT a valid argument for using income from operations as an appropriate measure of earnings to capitalize? a. Ease of normalization b. Limited bias/controversy c. Correlation with cash flow d. Theoretically sound 107. Which of the following is the most accurate statement regarding the Discounted Cash Flow (DCF) Method? a. There probably is little or no discernible difference between the accuracy of results of single-stage versus multi-stage DCF models b. The single-stage model tends to produce the most accurate results c. Multi-stage DCF models tend to produce more accurate results than single-stage models d. None of the above 108.Which of the following is used when determining value based on a single period cash flow? a. Discount rate b. Z score c. Capitalization rate d. All of the above lO9.Which of the following methods is NOT used when taking an "income approach" to value a company? a. Discounted Future Earnings Method b. Guideline Public Company Method c. Either of the Excess Earnings Methods d. Capitalization of Earnings Method 110. Which of the following methods views the total value of a business as the sum of the present value of its projected future earnings, plus the present value of its terminal value? a. Discounted Cash Flows Method b. Capitalization of Earnings Method c. Adjusted Book Value Method d. Excess Earnings Method Ill. Why do some valuators prefer net cash flows as the type of earnings to use as a measurement of economic income? a. Because there is no difference between net cash flows to equity and net cash flows to invested capital when there is no debt b. Because net cash flows are easier to calculate using the Weighted Average Method c. Net cash flows do not bring into the income approach the expected future changes in the balance sheet d. Because net cash flows represent the type of earnings most investors are seeking and expect to receive from their investments 112.Why does the Excess Earnings Method typically undervalue growth businesses? a. The method assumes growth at 10% b. The method assumes constant growth c. The method assumes zero growth d. The method assumes growth at 5% 100 © 2013by National Association ofCertified Valuators and Analysts (NACVA). Allrigbts reserved. 2013.vl

CVA Exam Q&A Study Guide Valuation Approaches 113. With respect to report writing, the narrative of the market approach does NOT need to: a. Discuss the applicability of the market approach b. Present the detail about the basis for the selected transactions or companies used c. Offer reasons why the method you selected is indicative of the value for the subject company/interest d. Explain the reasoning behind why the opposing expert analyst chose another method 114. When a mature company's earnings only recently took an unusual upswing, the following method is the most appropriate method in projecting earnings to capitalize: a. Weighted Average Method b. Trend Line Static Method c. Projected Growth Rate in Earnings Method d. Not enough information to say 115.What key factor(s) is(are) reflected in the value derived with the income approach? a. Expectation-the forecast b. Risk-attainability of the forecast c. Time-maturity schedule of the forecast d. Both b and c e. All of the above 116.When capitalizing an earnings stream, which of the following earnings streams should be used? a. This year's earnings b. Last year's earnings c. Next year's earnings d. Last five year's earnings 117.In order to use the Dividend Paying Capacity Method of valuation, the company being valued must payor have paid a dividend. a. Incorrect b. Correct 118.A conversion of a single stream of economic benefits into value is referred to as: a. Discounted cash flow b. Earnings before interest, taxes, depreciation, and amortization (EBITDA)/Sales c. Capitalization d. Discounting 119.What is a discount rate? a. The calculated external factor and internal factor multiplied by the investment factor b. Divisor or multiplier used to convert a defined benefit stream to present value c. The price/earnings ratio divided by the dividend paying capacity d. Rate of return used to convert series of future income amounts to their present value 120.When capitalizing economic income, the only growth being considered is that on existing capital. a. b. ©2013 by Natio IAssociation of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 101

Valuation Approaches CVAExam Q&A Study Guide 121.You have performed a valuation using the Excess Earnings Method. You should add a control premium to account for control value. a. Incorrect b. Correct 122. The Capitalization of Earnings Method would be appropriate to use for: a. Physician practice b. Law firm c. CPA firm d. All of the above TopicalCategory:6c-Market Approach I. A search for comparable publicly traded companies under the market approach should include all of the following EXCEPT: a. Normalize the financial statements of the initial group of companies before deciding whether to include them as a guideline company. b. Select a group of companies that have similar operating characteristics such as sales within a reasonable range of those of the subject company. c. Select an initial or "guideline" group of companies that have similar product offerings. d. Search for similar companies using the appropriate Standard Industrial Classification (SIC) or North American Industrial Classification System (NArCS) Code(s) or business description(s). 2. Advantages of the market approach include: a. It uses market data, it is straightforward in its application, and it does not rely on forecasts b. It is user friendly, cost effective to determine, and simple to apply c. It uses market data, it is straightforward in its application, and it is cost effective to determine d. It uses market data, it is cost effective to determine, the data obtained via transaction databases are very reliable 3. After performing a search for comparable companies and computing their valuation multiples, the multiples should be further refined by performing a comparability analysis using all ofthe following criteria EXCEPT: a. Historical growth rates b. Capital structure c. Size measures d. Number of employees 4. All of the following factors will influence market-based valuation multiples within a specific industry EXCEPT: a. The size of the company b. The general economic climate c. Growth patterns in the industry d. All of the above e. None of the above 102 © 2013byNational Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 2013.vl

CVA Exam Q&A Study Guide Valuation Approaches 5. An advantage of using the Market Method is that it is relatively quick and easy to use. a. Incorrect b. Correct 6. Assuming the companies are comparable in all other aspects, the data from the company that would most likely present a distortion in the valuation results if not adjusted, would be: a. The companies are not exactly the same b. The companies are not exactly the same in size c. The companies growth patterns are not the same d. The companies have the exact same industry 7. Assuming the following facts, which type of multiples would generally be used: I) using multiples to derive a value for a subject business; 2) valuing a controlling interest; and 3) have the option of modifying the equity structure? a. Market value of invested capital multiples b. Common equity multiples c. An average of multiples from each d. All of the above 8. Completed Transaction Method (CTM) is best used when valuing interests, since the sales reported are for sales of _ a. minority; only partial interests b. minority; entire companies and not partial interests c. controlling; only partial interests d. controlling; entire companies and not partial interests 9. Flotation costs may be described as: a. Costs associated with obtaining debt fmancing b. Costsassociatedwithlistingabusinessforsale c. Costs associated with taking a closely-held business public d. Costs associated with creating flotation debentures lO. If a company is to be considered a guideline company: a. It should be substantially comparable to the subject company b. It should be substantially identical to the subject company c. Neither a or b d. Both a and b 11. If a reliable forecast were directly available, it would generally be preferred as the basis for a market multiple. However, such forecasts are typically available only for larger firms and, hence, analysts most often use a trailing earnings measure. a. Incorrect b. Correct © 2013 byNational Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 2013.vl 103

Valuation Approaches CVA Exam Q&A Study Guide 12. In analyzing the appropriate level of value, a marketable minority interest is comparable to a "publicly traded equivalent. " a. Incorrect b. Correct 13. In the capital markets, i.e., the M&A and investment banking industries, market-based valuation multiples are used extensively because: a. They provide a better indication of value versus the discounted cash flow (DCF) approach. b. The IRS recommends their use in business valuation. c. They are relatively easy to use and provide a sound indicator of what the market is willing to pay for an asset. d. Most appraisal organizations teach the market method of valuation. 14. It is impossible to determine the value of total invested capital (TIC) using the market approach. a. Incorrect b. Correct 15. It is possible for a publicly traded guideline company to have a high price/earnings (PIE) ratio and at the same time a relatively low price-to-book ratio. a. Incorrect b. Correct 16. It is understood that the value of privately-held businesses can fluctuate with market trends (i.e. rollups, etc.); therefore, the timing of a transaction can have an effect on value. When using the Completed Transaction Method (CTM) it is appropriate to consider this. Which of the following is the most reasonable amount of time (from the date of a completed transaction) to consider when selecting appropriate transactions from any database? a. Deal must have occurred in same week as the valuation date b. Deal must have occurred in past five years c. Deal must have occurred in last 30 years d. Deal could have taken place anytime in history 17. It may be difficult to determine whether a company transaction is based on synergies. A value enhanced by synergies yields an investment value estimate, which may be different than a fair market value estimate. a. Incorrect b. Correct 18. Market-based valuation multiples are not static over time and, instead, reflect changing economic and industry conditions. a. Incorrect b. Correct 19. Market-based valuation multiples may be applied to either historical or forecast operating data. a. Incorrect b. Correct 104 © 2013 by National Association ofCertified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl

CVA Exam Q&A Study Guide Valuation Approaches 20. Of the following factors, which have the greatest influence on company specific valuation multiples? a. Liquidity and assets b. Profitability and leverage c. Size and growth d. Growth and profitability 21. Of the four main transaction databases with private transactions, which of the following two focus more on smaller transactions? a. IDA and Done Deals b. Pratt's Stats and Done Deals c. BIZCOMPS and IDA d. Pratt's Stats and IDA 22. One of the most common errors in using the market approach is inappropriate application of comparable multiples. The reason for this, and recommended solution, is: a. Differences between the guideline and subject companies would lead to applying multiples that are not identical to the guideline averages. Use a broader base of comparative companies b. Differences between the guideline and subject companies would lead to applying multiples that are not identical to the guideline averages. To counteract this, you should do site visits, perform comparative financial analysis, and conduct management interviews c. Neither a or b d. Both a and b 23. Price to gross revenue is often used for analysis because: a. Accounting methods may differ b. It is quicker to apply than more computational analysis c. It is more easily measured than price to earnings d. The effects of tax strategies is reduced 24. Prior to any adjustments, all of the following multiples may be used to determine the value of total invested capital (TIC) EXCEPT: a. Price/Earnings before interest and taxes (EBIT) b. Enterprise Value/Earnings before interest, taxes, depreciation, and amortization (EBITDA) c. TIClRevenue d. Price/Earnings 25. Sales: $10,000,000; Unadjusted economic earnings: $900,000; Adjusted economic earnings: $1,500,000; Comparable public company information weighted average sales: $15,000,000; Price/Earnings ratio: 4.5; Discount for lack of marketability: 30%; Discount for minority interest: 25%; Fair Market Value (FMV) of tangible assets: $4,000,000. Given the above facts, the Fair Market Value utilizing the market approach for a 100% minority non-marketable ownership interest in this privately-held company is: a. $6,750,000 b. $3,543,750 c. $4,725,000 d. $6,580,000 ©2013 by National Association of Certified Valuators and Analysts (NACVA). AUrights reserved. 20l3.vl 105

Valuation Approaches CVAExam Q&A Study Guide 26. Small closely-held company comparables are quite easy to find if you know where to look. a. Incorrect b. Correct 27. Some of the arguments against usmg the Guideline Completed Transaction Method include all of the following EXCEPT: a. Wide variances, inadequate sample sizes, and outdated transactions for many industries b. Distressed sale transactions, including divorce, death, or disability, are included in the data and not separately reported c. Databases are not necessarily Fair Market Value d. All of the completed transactions are for hypothetical buyers and sellers 28. Sources that provide company sales data such as BIZCOMPS and the iliA provide data which may be used to develop multiples of "debt free" entities. a. Incorrect b. Correct 29. The arguments against using private company transaction databases include each ofthe following EXCEPT: a. Distressed seller b. Too many transaction data points c. Sales are negotiated d. Wide variances and inadequate sample sizes for many industries 30. The desirable denominator for computing equity valuation multiples for a leveraged company is: a. Gross cash flow b. Sales c. Net income d. Pretax earnings 31. The Done Deals database includes transactions with prices in what range: a. Between $1 million and $1billion b. Under $1 million c. Bankrupt companies d. Over $100 million 32. The following bodies of evidence supports the size effect (smaller companies sell at lower prices, relatively speaking, than larger companies): a. Market value multiples used in the market approach b. Cost of capital data used in the income approach c. Neither a or b d. Both a and b 33. The Guideline Company Method can be used to value equity directly, but is NOT used when valuing the invested capital of the company. a. Incorrect b. Correct 106 © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl

CVA Exam Q&A Study Guide Valuation Approaches 34. The Guideline Transaction Method should NOT be used to value minority interest transactions. a. Incorrect b. Correct 35. The market approach for valuing a business utilizes the premise of comparability. In order for a company to be considered comparable to the subject interest, it should share all of the following characteristics EXCEPT: a. Companies should have the same number of stockholders. b. Companies should have similar capital structures. c. Companies should have similar competitive positions within the industry. d. Companies should be of similar size, relative to sales volume and total assets. 36. The market approach using the Guideline Company Method can be used only to value equity. a. Incorrect b. Correct 37. The market multiple market value of invested capital (MVIC)/earnings before interest, taxes, depreciation, and amortization (EBITDA) renders an indication of value for which of the following: a. The value of all interest-bearing debt in the organization b. The enterprise value also referred to astotal invested capital c. The value of all equity including preferred, common, and any minority interest d. The value of common equity 38. The multiple most likely used to value large non-publicly traded companies (over $100 million in revenue) is: a. Market value of invested capital (MVIC)/Book Value b. Price/Revenue c. Market value of invested capital (MVIC)/Earnings before interest, taxes, depreciation, and amortization (EBITDA) d. PricelBook Value 39. The Price Earnings Method is sometimes referred to as the Price to Earnings Ratio Method. a. Incorrect b. Correct 40. The principle of substitution is that the value of an asset tends to be determined by the cost of acquiring an equally desirable substitute. Which of the approaches to value is most closely based upon the principle of substitution? a. Income approach b. Asset approach c. Market approach d. All ofthe above 41. The same market-based valuation multiple can be used to derive the firm's total invested capital and the value of its equity. a. Incorrect b. Correct © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20\3.vl 107

Valuation Approaches CVAExam Q&A Study Guide 42. The Securities Exchange Commission (SEC) requires that any public company that acquires more than a certain percentage of a privately-held company disclose the target's financial data, typically in an 8-K filing. What is the percentage? a. 20% b. 5% c. 75% d. 51% 43. The two accepted methods of valuing a business under the market multiple approach include the: a. Publicly traded comparables and transaction multiples ("precedent transactions") b. Multi-period discounted cash flow (DCF) and publicly traded comparables c. Single-period capitalization and transaction multiples d. Single-period capitalization and multi-period DCF 44. The type of sale for private company sales data obtained from BIZCOMPS and the IBA is for asset sales. a. Incorrect b. Correct 45. The use ofBIZCOMPS in valuing a closely-held business would be considered an application of the: a. Net Adjusted Asset Method b. Market approach c. Guideline Publicly Traded Company Method d. Income approach e. None ofthe above 46. The use of Value Line or Standard & Poors in valuing a closely-held business would be considered an application of: a. Net Adjusted Asset Method b. Market approach-PricelEarnings Ratio Method c. Guideline Publicly Traded Company Method d. Income approach e. None of the above 47. To apply the market approach correctly, the appraiser should utilize which of the following: a. Reliable data b. Adequate number of market comparable or market transactions c. Public company comparables d. All ofthe above e. Both a and b 48. What is another possible use of the data found in the transaction databases? a. Assist a client with negotiations b. Lessen unrealistic expectations c. Develop a sense of the industry prior to meeting with a client d. Both a and b e. All of the above 108 ©2013 by National Association ofCertified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl

CVA Exam Q&A Study Guide Valuation Approaches 49. What is the primary argument against using a PricelEarnings (PIE) Ratio as a market multiple to value smaller closely-held companies? a. PIE ratios are the inverse ofthe capitalization rate. b. PIE ratios are difficult to calculate for public companies. c. PIE ratios from large, diversified, publicly traded companies are not reasonably comparable for a smaller closely-held business. d. PIE ratios are based on earnings after interest and taxes. 50. What type of information is needed to properly use the market approach? a. Data that is reliable concerning the subject company's financial history b. Analysis of public offering costs for the subject company transaction c. Comparable guideline companies or comparable company transactions in the same or similar industry d. Both band c e. Both a and c 51. When applying the Public Traded Guideline Method, the selected financial information used should not go beyond the valuation date. a. Incorrect b. Correct 52. When computing discretionary earnings, which of the following is added to income on a pretax basis? a. Interest b. Depreciation c. Owner's compensation for one owner d. All of the above 53. When developing market multiples, it is important to do all of the following EXCEPT: a. Multiples should be calculated in a way that preserves consistency between the numerator and denominator. b. The fmancial statements of the guideline companies should be normalized so that transitory gains and losses or other unusual performance items from the most recent year of activity are removed. c. Adjust market multiples for relative strengths and weaknesses between the guideline companies and the subject company. d. Ensure that only the mean or average multiples of the guidelines are used. 54. When selecting appropriate completed transactions, which word accurately (and simply) defmes how the selected transactions should resemble (industry, size, etc.) the company being valued? a. Similar b. Identical c. Different d. None of the above 55. When using Guideline Public Company Method for valuation purposes, what indication of value is the result? a. Non-marketable-minority interest value b. Non-marketab1e---contro1 value c. Marketable-minority interest value d. Marketable---control value © 2013 by National Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 2013.vl 109

Valuation Approaches CVA Exam Q&A Study Guide 56. When using the market approach and transaction data, what value isproduced? a. Marketable-minority interest value b. Marketable=control value c. Non-marketable-minority interest value d. Non-marketable-vcontrol value 57. When valuing controlling interests, the market value of invested capital multiples are generally preferred over equity multiples. a. Incorrect b. Correct 58. Which database does NOT provide private company transaction data? a. BIZCOMPS b. Pratt's Stats c. Hoover's d. Done Deals 59. Which database isNOT a resource for private company transactions? a. BIZCOMPS b. Robert Morris Associates' "Annual Statement Studies" c. Done Deals d. Pratt's Stats 60. Which measure of dispersion is usually the best indicator of the market multiple(s) to use when valuing companies in a defined industry? a. Standard deviation b. Coefficient of variation c. Range d. Upper versus lower quartile differential 61. Which of the approaches to value is based upon the economic principle of substitution? a. Market approach b. Income approach c. Asset approach d. None of the above 62. Which of the following are considered the primary sources for completed transaction data? a. Done Deals and BIZCOMPS b. IBA Data and Pratt's Stats c. Both a and b d. Neither a or b 110 © 2013by National Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 2013.vl

CVA Exam Q&A Study Guide Valuation Approaches 63. Which of the following attributes should an analyst consider to determine whether or not to use a particular public company in a valuation analysis? a. Revenue mix b. Competition c. Profitability d. All of the above e. Both a and c 64. Which of the following criteria should be considered by a valuator when applying a Guideline Public Company Method? a. The management style of the public company compared to the subject company b. Comparing financial statement and performance ratios to subject company c. Current or historical net income or loss in comparison to earnings history of subject company d. All of the above 65. Which of the following databases is focused on minority interest transactions? a. Done Deals b. Pratt's Stats c. IDA d. All of the above 66. Which of the following databases supply transactional data for private company sales? a. BIZCOMPS and Pratt's Stats b. EDGAR and Ibbotson c. Neither a or b d. Both a and b 67. Which of the following is NOT a good source for finding public-company data for the Guideline Company Method under the market approach: a. BIZCOMPS b. Standard & Poor's Corporation Records c. EDGAR d. Moody's Manuals 68. Which of the following is NOT commonly used as a basis of comparison between a subject company and a company or transaction being used in either of the market approach methods? a. Sales b. Growth c. Capital structure d. Management structure e. Industry ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 111

Valuation Approaches CVA Exam Q&A Study Guide 69. Which of the following is NOT normally one of the steps taken when using transaction data to estimate the value of abusiness? a. Adjust the subject company's historical operating margins to reflect typical industry results. b. Adjust any observed deal price to reflect transaction specific issues including consideration paid for non- compete agreements, employment agreements, etc. c. Analyze the various sales in the transaction data printout to determine a valuation ratio that best defines the market or business of the same type as the subject business. d. Multiply the selected ratio by the comparable measure of the subject business. 70. Which of the following is NOT true with regard to computing multiples under the Guideline Public Company Method? a. Price to Invested Capital measures are the most appropriate measure b. The guideline company multiples are applied to the appropriate benefit stream of the subject company c. The mean of the calculated multiple from the guideline companies should be used d. Comparability analysis isperformed 71. Which of the following is probably the most commonly used market method to value a share of stock? a. DividendlPrice b. Weighted Average Cost of Capital (WACC) c. Price/Earnings Ratio d. S&P 500 72. Which of the following might be considered a weakness orproblem in using the Market Approach? a. Transactions may be synergistic in nature b. Companies may be diversified in operations c. Details of actual transactions are unknown d. Both a and c e. All of the above 73. Which of the following private company databases includes only companies that are debt-free? a. BIZCOMPS b. Mid Market Comps c. Pratt's Stats d. None of the above 74. Which of the following similarities would you want to identify between your subject company and completed transactions from the market in order to use them as valid comparables in your analysis? a. The size, number, and type of clientele are similar b. The revenues are approximately the same and the revenue mix is similar c. The location, level of technology, and competition are similar d. Both a and c e. All of the above 112 ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl

CVA Exam Q&A Study Guide Valuation Approaches 75. Which of the following transaction databases focuses on small businesses with a large emphasis on food service/restaurant, service businesses, and personal service? a. BIZCOMPS b. IBA c. Done Deals d. Pratt's Stats 76. Which of the following transaction databases is different from the other three in that the transactions are all collected from Securities and Exchange Commission (SEC) filings rather than business brokers, MA Intermediaries, and other public and private sources? a. BIZCOMPS b. IBA c. Done Deals d. Pratt's Stats 77. Which resource below provides data on the sales transactions of closely-held businesses? a. The Appraisal Foundation b. BIZCOMPS c. RMA d. Ameritrade 78. Which statement applies to the Dividend Paying Capacity Method? a. This method can only be used when valuing 100% of the company and not aportion ofthe company. b. This method utilizes market comparisons. c. This method does not consider liquidity as a factor in the valuation. d. To use this method, the company must always have had a history of paying dividends. 79. Which two transactional databases focus on transactions of under $5 million (i.e. small companies)? a. BIZCOMPS and Institute of Business Appraisers b. BIZCOMPS and Capital IQ c. Mergerstat and BIZCOMPS d. Institute of Business Appraisers and Mergerstat 80. Which of the following statements is NOT applicable to the PricelEarnings (PIE) Ratio Method? a. The PricelEarnings Ratio Method is also a market based approach. b. This method is mainly used when valuing closely-held companies. c. The PIE Ratios are typically obtained from comparable publicly traded companies. d. The earnings portion of the PIE Ratio is represented by net after-tax income of comparable companies. 81. When valuing a privately-held business using the Completed Transaction Method (CTM) approach, the first step would typically be to: a. Review nature and background of the company that you are valuing b. Adjust specific company financial statements c. Search for appropriate transactions d. Determine valuation multiples © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 113

Valuation Approaches CVA Exam Q&A Study Guide 82. A primary argument often cited for using the Price/Earnings (PIE) Ratio Method to value closely-held companies is: a. Large, diversified, publicly traded companies are comparable to a smaller closely-held business b. PIE ratios are based on earnings after owners/officers' compensation c. PIE ratios are easy to calculate for public companies d. Noneofthe above 83. When using the Guideline Completed Transaction Method, the value produced is non-marketable-minority interest value. a. Incorrect b. Correct TopicalCategory: 6d-Asset Approach 1. All things being equal, a company would generally sell for more in an asset sale than a stock sale when: a. The company has a significant amount of fully depreciated assets b. The company has significant built-in gains c. The company is very capital intensive d. The company's business is very risky and litigious 2. An orderly liquidation value is developed using which approach? a. Asset-based approach b. Comparable sales approach c. Income approach d. Market approach 3. Assets and/or liabilities should always be adjusted under which approach? a. Adjusted net asset approach b. Hybrid approach c. Market approach d. Income approach 4. Book value is the floor value of an entity. It can be an appropriate measure of business value since it represents shareholders equity. a. Incorrect b. Correct 5. Cash is the most important commodity to any company. a. Incorrect b. Correct 114 ©2013 by National Association of Certified Valuators and Analysts (NACVA). AUrigbts reserved. 2013.v1

CVA Exam Q&A Study Guide Valuation Approaches 6. If a firm is considering an acquisition, which of the following can be used to discount the incremental cash flows expected as a result of the acquisition, if using an investment value standard? a. The firm's overall expected cost of capital immediately following the acquisition b. The cost of capital best reflecting the risk factors of the acquisition c. The industry average cost of capital d. The firm's overall cost of capital immediately prior to the acquisition 7. If the discount rate is 25%, the capitalization rate is 22%, and the required return on tangible assets is 15%, what can be said about the capitalization rate on the intangible assets in the Excess Earnings Method? a. It is lower than 25% b. It is lower than 15% c. It is higher than 22% d. None of the above 8. Rules of Thumb in general: a. Should never be used for any purpose b. Are required to be used by Tax Law c. Should be used as the primary method chosen in a formal business valuation report d. Should be used as a "sanity check" on the value determined by other methods in a formal business valuation report 9. The Adjusted Net Asset Method, at liquidation value, generally sets a for determining total entity value after the analyst considered the potential overstatement of the value of the assets, existence of all non-operating assets, and other omissions in the analyst determination. a. forced liquidation value b. investment value c. floor value d. high value 10. The Adjusted Net Asset Valuation Method is used: a. When the asset method of valuation is the easier way to perform the calculations of value on the company b. When assets are under-performing according to the owner and the bank carries a mortgage on those assets c. When the business was liquidated prior to valuation and the earnings did meet the market test d. When the valuation analyst needs a minimum or floor value for the company as there may be no earnings or the business is a holding company or an investment firm 11. The Capitalization of Earnings Method expresses a relationship between all of the following EXCEPT: a. The estimated value of the business b. The rate of return or capitalization rate c. The estimated future amount of earnings d. The value of the adjusted net assets © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20J3.vl 115

Valuation Approaches CVAExam Q&A Study Guide 12. The company you are valuing has a significant amount invested in fixed assets, but the company's material tangible assets are inventory and receivables. The company is willing to pay to have the fixed assets appraised professionally if need be. Which of the following is a reasonable solution to estimating the Fair Market Value of the fixed assets? a. Insist on an appraisal or withdraw from the engagement b. Use liquidation value c. Use management's estimate of Fair Market Value, but document this in the workpapers and disclose it in the report d. Use book value l3. The Excess Earnings Method (also called the Formula Method) was used by the U.s. Treasury Department to determine the amount to compensate distilleries for their loss of intangible value in the nature of goodwill resulting from Prohibition. a. Incorrect b. Correct 14. The Excess Earnings Method has a tendency to undervalue cash-cow type businesses and overvalue growth businesses. a. Incorrect b. Correct 15. The Excess Earnings Method: a. Requires a high degree of subjectivity in arriving at "reasonable" rates ofretum b. Combines tangible and intangible assets as inseparable c. Is highly favored by the Internal Revenue Service, as indicated in its 1998 edition of its "Valuation Training Manual for Appeals Officers" d. Uses objective market data to establish rates ofretum 16. The Excess Earnings/Treasury Method acquired its name from which IRS pronouncement(s): a. ARM 34 b. Revenue Ruling 59-60 c. Revenue Ruling 68-609 d. Both a and c 17. The intangible elements of going concern value include: a. The "in-place" value from assets, systems, and work force b. The intangible value of an enterprise c. Cash flows generated from a company's net tangible assets d. Both a and b 116 ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rigbts reserved. 2013.vl

CVA Exam Q&A Study Guide Valuation Approaches 18. There are ten essential characteristics in defining an intangible asset. Some of these are: a. To provide an economic advantage in the form of lower manufacturing or operating costs such as reducing shipping costs by eliminating manufacturing environmental hazards b. To provide an economic advantage in the form of lower manufacturing or operating costs such as lowering high manufacturing speeds by reducing fuel or electric power requirements c. To provide an economic advantage in the form of lower manufacturing or operating costs such as reducing the amount of labor required to manufacture, inspect, package, or account for a product d. To provide an economic advantage in the form of lower manufacturing or operating costs such as substituting high cost, high quality materials for low cost materials enabling a higher quality product 19. Using the Adjusted Net Asset Method, the valuator only values tangible assets. a. Incorrect b. Correct 20. What method is sometimes referred to as the Assets Accumulation (Individual Revaluation Method)? a. Price/earnings b. Excess earnings c. Price/net book value d. Adjusted Net Asset Method 21. When considering the net acquisition value (NAV), if the synergistic effect is NOT greater than the ________ plus the , then the acquiring firm will have overpaid for the target company. a. expenses of the acquisition process; market value of target shares b. premium paid for target; expenses of the acquisition process c. parent company's own value; market value of target shares d. parent company's own value; premium paid for target 22. When determining the market value of equity (MVEq), the analyst should consider, at a minimum, all of the following EXCEPT: a. Enterprise value b. Common equity c. Debt d. Minority interest 23. When making an adjustment, which results from a difference between book value and appraised value of real estate (assuming a C Corp.)? a. An adjustment to deferred taxes needs to be considered. b. There is no need to consider a corresponding adjustment to deferred taxes. c. Consideration of deferred taxes is solely at the option of the valuator. d. Deferred taxes only need to be considered if the corporation had aprior history of profitability. 24. When using the Adjusted Net Assets Method of valuation, which of the following would NOT be a typical financial statement adjustment considered by the valuation analyst? a. Convert last in first out (LIFO) inventory to first in first out (FIFO) inventory b. Remove non-operating assets c. Adjust owner's compensation d. Adjust fixed assets to estimated Fair Market Value © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl 117

Valuation Approaches CVA Exam Q&A Study Guide 25. When using the Adjusted Net Assets Method, the analyst can adjust the book value to: a. Liquidation Value b. Fair Market Value c. Replacement Value d. Both a and c e. All of the above 26. When using the Adjusted Net Assets Method, the valuator will value only a company's tangible assets. a. Incorrect b. Correct 27. When using the Excess Earnings Method to value a company, how must the goodwill recorded on the financial statements be treated? a. They receive no special treatment and are included in net tangible assets. b. They must be subtracted from net tangible assets and added back at the end. c. They must be converted to Fair Value. d. It must be subtracted from net tangible assets because the value of all the intangible assets held by the company is the excess earnings that gets capitalized. 28. When using the Net Asset Value Method, which of the following isNOT true: a. The courts have allowed various methods of recognizing the effect of income taxes on trapped-in capital gains on appreciated assets. b. The Gross case decided by the tax court does not affect the recognition of a liability for income taxes on trapped-in capital gains on appreciated property when using an asset-based approach method. c. The federal courts now generally recognize that the income taxes on trapped-in capital gains should be recognized as a reduction of the net asset value when an asset-based valuation approach is used. d. When valuing a C corporation, valuation consultants agree that when assets are adjusted to fair market value an income tax liability should never be recognized to reflect the deferred income taxes on the difference between the Fair Market Value of the assets and their income tax adjusted basis. 29. When valuing a medium-sized manufacturing concern, or an interest therein, which of the following valuation methods would be considered to be the LEAST reliable? a. Merger and Acquisition Transaction Method b. A previous arms-length sale of the company or interests in it c. Guideline Public Company Transaction Method d. Industry Rules of Thumb 30. When valuing the stock of a real estate holding company, most likely the valuator will give the greatest weight to which method? a. Book Value Method b. Capitalization of Earnings Method c. Rule of Thumb Method d. Adjusted Book Value Method 118 ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl

CVA Exam Q&A Study Guide Valuation Approaches 31. Which method applies a reasonable rate of return to the latest year's balance of adjusted net assets rather than to an unweighted or weighted average of net assets? a. Discounted Future Earnings Method b. Capitalization of Earnings Method c. Excess Earnings Reasonable Rate Method d. Excess Earnings Treasury Method 32. Which method combines the income and asset based approaches to amve at a value of a closely-held business? a. Discounted Cash Flows Method b. Book Value Method c. Excess Earnings Method d. Guideline Public Companies Method 33. Which method is based on the theory that the total value of a business is the sum of the adjusted net assets and the value of the intangibles as determined by capitalizing the "excess" earnings of the business utilizing the subject company's rate of return on the adjusted net assets of the business? a. Discounted Future Earnings Method b. Capitalization of Earnings Method c. Excess Earnings Reasonable Rate Method d. Excess Earnings/Treasury Method 34. Which method is most appropriate for estimating the value of a non-operating business or a business that continues to generate losses, or which isto be liquidated? a. Adjusted Net Assets Method b. Discounted Future Earnings Method c. Capitalization of Earnings Method d. Market Approach-Dividend Paying Capacity 35. Which of the following methodes) is often referred to as an "Excess Earnings Method?" a. The Reasonable Rate Method b. The Treasury Method c. The Goodwill Method d. Both a and b e. All of the above 36. Which of the following serves as a relevant starting point in the valuation of a closely-held business? a. Adjusted Net Asset Value b. Book Value c. Liquidation Value d. Historical Cost Value 37. Which of these is NOT useful in the valuation of intangible assets? a. Company book value b. Residual method c. An arm's length allocation of costs of apurchase d. Capitalization of excess earnings © 2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 119

Valuation Approaches CVA Exam Q&A Study Guide 38. Which one of the following adjustments would be made on the balance sheet to adjust a company's book value to its adjusted Fair Market Value? a. Adjust for one-time expenses b. Adjust owner's compensation c. Remove excess cash d. Convert inventory from first in first out (FIFO) to last in first out (LIFO) 39. Which statement is true when using the Adjusted Net Assets Method of valuation? a. This method always underestimates the value of a business. b. This method relies on comparable company data to adjust the value of the net assets to market value. c. This method also addresses the operating earnings of the business. d. The Fair Market Value of the net assets are then reduced by the Fair Market Value of any recorded and unrecorded liabilities. 40. Which valuation method has the negative aspect of not addressing the operating earnings of the business and would be inappropriate to use to value intangible assets such as patents or copyrights that are typically valued based on some type of operating earnings? a. Capitalization of Earnings Method b. Retained Earnings Method c. Adjusted Net Assets Method d. Excess Earnings Reasonable Rate Method Topical Category: 6e---Sanity Checks 1. A mathematical formula developed from the relationship between price and certain variables based on experience, observation, and hearsay, and which is usually industry specific, isreferred to as: a. The Comparable Company Transaction Method b. The Price to Earnings (PIE) Ratio c. The Analytical Process d. A Rule of Thumb 2. A potential practitioner "flaw" when using Excel-based models and/or templates that the practitioner has modified for a uniqueness of the subject company is: a. Mathematical errors b. Substituting inaccurate time periods c. Substituting a discount rate for a capitalization rate d. Estimating the cost of capital incorrectly 3. The weighted average return on assets (WARA) analysis is a reasonableness test, but not a direct way to value individual intangible assets. a. Incorrect b. Correct 120 © 2013by National Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 2013.vl

CVA Exam Q&A Study Guide Valuation Approaches 4. Which of the following is a reasonableness test of the conclusion of value, which considers whether the cash flow is adequate to service the debt capital and provide a reasonable rate of return to the investor? a. Adjusted net assets b. Rule of Thumb c. Capitalized Earnings Method d. Price/Earnings Method e. Justification of purchase 5. Which of the following isNOT a common source of industry valuation formulas and Rules of Thumb? a. Industry-specific journals and trade publications b. Trade association publications and newsletters c. Robert Morris Associates' "Annual Statement Studies" d. Handbook of Small Business Valuation Formulas and Rules of Thumb by Glenn M. Desmond 6. Rules of Thumb Methods of valuation are theoretically sound. a. Incorrect b. Correct 7. All of the following are ways to compute "terminal value" EXCEPT: a. Constant Growth Method b. Liquidation Value Method c. Multi-Period Discounted Cash Flow (DCF) Method d. Market Multiple Method 8. Generally speaking, a Rule of Thumb Method for valuing a small business could be: a. A multiple of discretionary earnings b. A multiple of excess earnings c. A price to earnings multiple d. A multiple of future cash flows Topical Category: 6f-Reconciliation of Indicated Values 1. The valuation specialist usually does NOT reconcile the total Fair Value of individual assets to an overall business enterprise value. a. Incorrect b. Correct 2. When people refer to "the value of the company" (as opposed to just the value of equity), they usually mean the value of the total invested capital. a. Incorrect b. Correct ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 121

Valuation Approaches CVA Exam Q&A Study Guide 3. Which revenue ruling is usually considered as a cornerstone of IRS literature pertaining to business valuation? a. ARM 34, issued in 1920 b. Revenue Ruling 59-60 c. Revenue Ruling 98-34 d. Revenue Ruling 68-609 4. Using the income approach you have calculated a value of $5 million. The historical balance sheet shows an equity of $7 million. The net Fair Market Value (FMV) of the tangible assets is $9.2 million. This is a tax- related valuation. The correct value is: a. $5 million b. $7 million c. $9.2 million d. You would indicate the value is between $5 million and $9.2 million in your report 5. The combination and/or weighting of the results of several valuation methods is highly recommended by Revenue Ruling 59-60. a. Incorrect b. Correct 6. Liquidated damages clauses are generally upheld if the specified sum of money bears a reasonable relationship to the anticipated loss. a. Incorrect b. Correct 122 © 2013 by National Association ofCertified Valuators and Analysts (NACVA). All rights reserved. 20\3.vl

Discounts. Premiums. and Other Adjustments CVAExam Q&A Study Guide Topical Category: 8a-Discounts, Premiums, and Other Adjustments 1. What is DLOC? a. Discount for lack of control b. Discount for lack of cash c. Discount for lack of carry-forward tax break d. Discount for lack of credit line at a major financial institution 2. What is DLOM? a. Discount for lack of mobility b. Discount for lack of minority interest c. Discount for lack of marketability d. Discount for lack of maintenance 3. A minority interest discount is applied: a. Before the marketability discount, if one is warranted b. After a control premium and before the marketability discount c. After the marketability discount, if being valued on anonmarketable basis d. All ofthe above 4. Characteristics of a minority owner are as follows: a. Generally owns 50% or less of the voting interest b. Is generally unable to dictate the purchase or sale of business assets c. Cannot unilaterally elect directors or appoint management d. All of the above 5. Conceptually, which is the proper method of applying both a lack of control and a lack of marketability discount? a. The discounts are multiplied together in order to be added multiplicatively b. The lack of control discount precedes a lack of marketability discount if the valuation is on a non- controlling basis c. The lack of marketability discount is taken before a lack of control discount d. The discounts are added together and then applied to the "pre-discounted" value of the ownership interest being valued 6. From a risk adjustment standpoint there are three main categories of factors that may influence the discount or capitalization rate. Which of the following is NOT one of the three categories? a. External factors b. Safe rate ofretum c. Internal factors d. Investment factors 7. Given the following: key person discount-lO%, minority interest discount-20%, marketability discount- 30%, what percentage of indicated value would remain after these discounts? a. 50.40% b. 51.00% c. 55.00% d. 60.00% 152 ©2013 by National Association ofCertified Valuators and Analysts (NACVA). Allrights reserved. 2013.v1

CVA Exam Q&A Study Guide Discounts. Premiums. and Other Adjustments 8. Identify all of the following statements that are true. a. The ability to convert an illiquid investment to cash has considerable value b. Investors prefer investment holdings that can be easily converted to cash c. The determination of a discount for lack of marketability is an ardent task d. All of the above e. Both a and b 9. If discounts are: key person-lO%, minority interest-20%, marketability-30%, what would the total discount equal? a. 51.00% b. 49.60% c. 60.00% d. 55.00% 10. If the stated rate on a debt instrument were above current market rates, one would expect it to trade at a discount. a. Incorrect b. Correct 11. In a valuation in which the valuator applies both a lack of marketability discount and a discount for lack of control, the application of the discounts is additive not multiplicative. a. Incorrect b. Correct 12. In defining the base to which the minority discount and the discount for lack of marketability is applied, which of the following statements isFALSE? a. Under the income approach using a discounted cash flow methodology, the value conclusion is non- marketable. b. Under the income approach using a discounted cash flow methodology, the value conclusion can be either minority or control, depending on the benefit streams utilized. c. Under the asset approach, the value generally determined is control, marketable value. d. Under the private company transaction approach, the value generally determined IS a control, non- marketable value. 13. In the valuation of closely-held stock, it is common to learn the stock is subject to an agreement restricting its sale or transfer. According to Revenue Ruling 59-60, the opinion price in the restrictive agreement is NOT determinative of Fair Market Value. a. Incorrect b. Correct 14. It would not be surprising for a valuator to have the same marketability discount for a controlling interest as they would when valuing a minority interest. a. Incorrect b. Correct ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl 153

Discounts, Premiums, and Other Adjustments CVA Exam O&A Study Guide 15. Key-man life insurance policies affect the value of a closely-held business because: a. The life insurance policy could change the debt picture of the company by paying off debt b. The key man life insurance policy would reduce the cost of transition from one management to another c. The key man life insurance policy would inject cash into a company that is being valued for liquidation that will result in a higher liquidation value d. All of the above e. None of the above; key-man insurance policies do not affect the valuation ofa business 16. Restricted stock studies and pre-IPO (initial public offering) studies aid the analyst in quantifying the: a. Control premium b. Discount for minority interest c. Marketability discount d. Capitalization rate 17. Revenue Ruling 77-287 specifically recognized criteria for determining which of the following: a. Willing buyer and willing seller concept b. Discount for lack of marketability of stock in closely-held companies c. Discount for minority interest/ownership d. The appropriate capitalization rate 18. Some methods used to value a business may already incorporate some aspects of a minority interest discount and/or discount for lack of marketability. a. Incorrect b. Correct 19. Substantive advocacy is defined as: a. An awareness of the tactics and strategies of litigation b. Altering the objectivity of an expert opinion to advance a client's interests c. Ethical conduct for an expert witness d. None of the above 20. Tax courts need to stick with the discounts (or premiums) the valuation analyst provides. Ajustice needs to do this in order to define why aparticular discount (or premium) was denied. a. Incorrect b. Correct 21. The database contains mainly transactions in business services, depository institutions, and the communications industry with 51% of the deals in the database having net sales less than $100 million, and the remainder having net sales greater than $100 million. a. Done Deals b. IDA c. Mergerstat d. Pratt's Stats 154 ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20l3.vl

CVA Exam Q&A Study Guide Discounts. Premiums. and Other Adjustments 22. The initial Tax Court decision in the taxpayer's favor regarding built-in gains tax discounts is: a. Estate of Davis b. Estate of Bright c. Estate ofAndrews d. Estate of Mitchell 23. Theoretically, discounts for lack of marketability should fall within which of the following ranges: a. 10-20% b. 15-35% c. 25-40% d. No specific range exists 24. What is(are) the primary factor(s) in determining the presence and size of a discount for lack of control (DLOC)? a. The ability to file a dissenting shareholder action b. The degree of control the interest holder possesses c. The ability to have a vote for each share held d. The knowledge management can do whatever it wants 25. What step(s) must precede the application of applicable discounts? a. Gather as much data as possible to support discounts b. Determine the base value of equity or the enterprise first c. Determine the growth rate of the entity d. Ensure the hypothetical transaction is not seller financed 26. When applying both a discount for lack of control and a discount for lack of marketability, the discounts are added together and then applied to the pre-discounted value of the ownership interest being valued. a. Incorrect b. Correct 27. When applying both a discount for lack of control and a discount for lack of marketability: a. The discounts are added together and then applied to the "pre-discounted" value of the ownership interest under valuation. b. The application of the discounts is multiplicative, not additive, with the total overall discount being less than the sum of the individual discounts. c. The application of the discounts is multiplicative, not additive, with the total overall discount being greater than the sum of the individual discounts. d. The discounts are added together and then applied to the gross value of the entity. 28. When appraising a privately-held business interest, the discount for lack of marketability is generally the largest adjustment in determining an estimate of value. a. Incorrect b. Correct ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 20l3.vI 155

Discounts, Premiums, and Other Adjustments CVA Exam Q&A Study Guide 29. When the standard of value is Fair Market Value, the three generally accepted levels of value include: a. Controlling interest, marketable minority interest, and non-marketable control interest b. Marketable, non-marketable, and specific investor c. Controlling interest, non-marketable control value, and marketable control value d. Controlling interest, marketable minority, and non-marketable minority 30. When utilizing a discounted cash flow methodology, value is representative of the capitalized economic income once the benefit stream stabilizes, remains constant, or grows or declines at a constant rate. a. stabilized cash flow b. linear value c. terminal d. fair market 31. Which discount will likely be taken from a calculated equity value in a valuation for M&A purposes? a. Discount for lack of control b. Discount for lack of marketability c. Discount for lack of voting rights d. No discounts should be taken; M&A valuations are usually for marketable, controlling interests 32. Which of the following factors affect the marketability (or lack thereof) of closely-held securities? a. The size of the interest being valued b. The size of the potential market of buyers c. Restrictive transfer provisions of the stock d. Both band c e. All ofthe above 33. Which of the following is included in the three basic levels of value? a. Controlling interest value b. Marketable minority interest value c. Non-marketable minority interest value d. All of the above 34. Which of the following isNOT a discount adjustment in abusiness valuation? a. Discount for lack of marketability b. Discount for lack of control c. Discount for economic conditions d. All of the above 35. Which of the following is NOT a fundamental concept applicable to premiums and discounts? a. The benefit stream used in valuing a company has no impact on what discounts may be applicable. b. Discounts such as marketability and minority discounts are multiplicative rather than additive. c. No discount is appropriate until the base to which it is applied is clearly defined. d. Minority discounts must be applied before marketability discounts. 156 ©2013 by National Association of Certified Valuators and Analysts (NACVA). All rights reserved. 2013.vl