Exam (elaborations)
CEPA - 8. BASICS OF BUSINESS VALUATION
- Course
- Institution
CEPA - 8. BASICS OF BUSINESS VALUATION
[Show more]
Content preview
CEPA - 8. BASICS OF BUSINESS VALUATIONPurposes for Business Valuation: Right Ans - A) Selling a business to a third
party
B) Transferring ownership to family via gifting
C) Litigation between shareholders
D) Divorce between husband and wife
E) Establishing value for estate tax determination
F) Installing an Employee Stock Ownership Plan and Trust (ESOP)
G) Acquiring a business
Some of the reasons why "Price" doesn't always equal "Value" are Right
Ans - • Hold-Back of Proceeds (escrow)
• Seller Financing
• Performance Payments / Earn-Out Provision
• Non-Competition Agreement
• Employment Agreement and/or Consulting Agreement
• Contingent and Unknown Liabilities
There are five standard of value. Right Ans - - Fair market value (FMV)
- Investment value
- Intrinsic or fundamental value
- Fair value
- Emotional value
Which one of the 5 standard of value should be considered in a valuation
depends on its ___. Right Ans - purpose
Fair Market Value Right Ans - The price at which the property would
change hands between a "hypothetical" willing buyer and a "hypothetical"
willing seller, when the former is not under any compulsion to buy and the
latter is under no compulsion to sell, both parties having reasonable
knowledge of relevant facts.
Investment Value Right Ans - The value to a particular investor based on
individual investment requirements and expectations (Buyer-Specific).
, Intrinsic or Fundamental Value Right Ans - The value that an investor
considers, on the basis of an evaluation of available facts, to be the "true" or
the
"real" value that will become the market value when other investors reach the
same conclusion.
When the term applies to options, it is the difference between the exercise
price or the strike price of an option and the market value of the underlying
security.
Fair Value - VALUATION DEFINITION Right Ans - The price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction
between "actual" market participations at the measurement date.
Fair Value - LITIGATION DEFINITION Right Ans - With respect to
dissenter's shares, means "restore me to equity" with the valuation on an
enterprise level (no minority position discount and no lack of marketability
discount).
Emotional Value Right Ans - • What a buyer and seller perceive
• Most commonly an unrealistic
seller expectation
If the purpose(s) of the valuation are to determine the profit gap, value gap, or
wealth gap, which standard of value can be used?
A) Calculation of Value
B) FMV
C) Investment Value
D) Intrinsic or fundamental value
E) FV
F) Emotional value Right Ans - A) Calculation of Value
Notes: low complexity/Discover gate
If the purpose(s) of the valuation are to determine for stock options, profit
interest plan, shareholder buy-in/out, litigation, or strategic (acquire a
business), which standard of value can be used?
A) Calculation of Value
B) FMV
C) Investment Value
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller LeCrae. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $11.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
78600 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now