ASA BV 201 Exam Questions and Answers 100%
Pass
Principle of Substitution -✔✔a prudent buyer will pay no more for a
property than it would cost to acquire a substitute property with the same
utility
How is a Fairness Opinion different than a FMV? -✔✔A Fairness Opinion
goes further than a FMV by assessing whether a transaction is fair between
all ownership entities. It also serves as an insurance policy for the
transacting parties.
Which two valuation methods are based on the principle of substitution? -
✔✔Market and Asset (Cost)
What is an "arm's-length" transaction? -✔✔One in which both parties have
the ability to negotiate.
Why are "rules of thumb" used in valuation? -✔✔When either (a) the rule is
highly common in the industry and the most likely buyer would use it, or
Copyright ©EMILLECT 2024. ALL RIGHTS RESERVED. Page 1/32
,(b) there is little or no data. This method should only be used as a sanity
test.
What are the strengths of the Market Approach? -✔✔(a) It is a direct
method of valuation when using similar transactions, (b) the data is easily
accessible and abundant, (c) includes all assets, and (d) incorporate current
market conditions - reflecting investor growth and risk expectations
What are the weaknesses of the Market Approach? -✔✔(a) no two
companies or transactions are identical, therefore it will always be
somewhat inaccurate (think case-specific synergistic premiums), (b) there
could be a lack of activity, and (c) doesn't rely on forecasts
What are the strengths of the Asset (Cost) Approach? -✔✔(a) it is useful for
the holding company and (b) it is useful for liquidations
What are the weaknesses of the Asset (Cost) Approach? -✔✔(a) it doesn't
focus on the income the assets produce as a whole, (b) it doesn't value
intangible assets/value, and (c) it is less applicable in minority interests
valuations
Copyright ©EMILLECT 2024. ALL RIGHTS RESERVED. Page 2/32
,What are the strengths of the Income Approach? -✔✔It is the closest to
pure value theory.
What are the weaknesses of the Income Approach? -✔✔(a) it is very
difficult to accurately forecast future cash flow and (b) the discount rate is
difficult to accurately estimate
What is the ASA definition of a business? -✔✔A commercial, industrial,
service, or investment entity pursuing an economic activity.
What is the dictionary definition of a business? -✔✔(a) a commercial or
industrial enterprise and the people who constitute it, (b) an organization
operated with the objective of making a profit from the sale of goods or
services, (c) an enterprise, commercial entity or firm, in either the private or
public sector, concerned with providing products or services to satisfy
customer requirements
What is the real world definition of a business? -✔✔A group with a
strategy of systems and procedures to utilize assets to meet customer
demand.
Copyright ©EMILLECT 2024. ALL RIGHTS RESERVED. Page 3/32
, What are the four key components of a business? -✔✔Strategy, Systems,
People, Assets
What are the common differences between public and private companies? -
✔✔Size, management depth, product line diversification, geographic
diversification, market position/share, supplier/customer dependence,
access to capital, brand name
What is included in Total Invested Capital? -✔✔Interest-Bearing Debt and
Stockholders' Equity
Preferred stocks generally have precedence over common stock in what
two areas? -✔✔Dividends and liquidation distributions.
What is the formula for Equity FCF? -✔✔Net Income + D&A - Increase in
WC - CapEx + Increase in LT Debt
What is the formula for Invested Capital FCF? -✔✔Net Income + Income
Taxes + Interest Expense - Taxes{Income Taxes/(Net Income + Income
Taxes)} + D&A - Increase in WC - Capex
Calculate the Tax Rate -✔✔Income Taxes/(Net Income + Income Taxes)
Copyright ©EMILLECT 2024. ALL RIGHTS RESERVED. Page 4/32
Pass
Principle of Substitution -✔✔a prudent buyer will pay no more for a
property than it would cost to acquire a substitute property with the same
utility
How is a Fairness Opinion different than a FMV? -✔✔A Fairness Opinion
goes further than a FMV by assessing whether a transaction is fair between
all ownership entities. It also serves as an insurance policy for the
transacting parties.
Which two valuation methods are based on the principle of substitution? -
✔✔Market and Asset (Cost)
What is an "arm's-length" transaction? -✔✔One in which both parties have
the ability to negotiate.
Why are "rules of thumb" used in valuation? -✔✔When either (a) the rule is
highly common in the industry and the most likely buyer would use it, or
Copyright ©EMILLECT 2024. ALL RIGHTS RESERVED. Page 1/32
,(b) there is little or no data. This method should only be used as a sanity
test.
What are the strengths of the Market Approach? -✔✔(a) It is a direct
method of valuation when using similar transactions, (b) the data is easily
accessible and abundant, (c) includes all assets, and (d) incorporate current
market conditions - reflecting investor growth and risk expectations
What are the weaknesses of the Market Approach? -✔✔(a) no two
companies or transactions are identical, therefore it will always be
somewhat inaccurate (think case-specific synergistic premiums), (b) there
could be a lack of activity, and (c) doesn't rely on forecasts
What are the strengths of the Asset (Cost) Approach? -✔✔(a) it is useful for
the holding company and (b) it is useful for liquidations
What are the weaknesses of the Asset (Cost) Approach? -✔✔(a) it doesn't
focus on the income the assets produce as a whole, (b) it doesn't value
intangible assets/value, and (c) it is less applicable in minority interests
valuations
Copyright ©EMILLECT 2024. ALL RIGHTS RESERVED. Page 2/32
,What are the strengths of the Income Approach? -✔✔It is the closest to
pure value theory.
What are the weaknesses of the Income Approach? -✔✔(a) it is very
difficult to accurately forecast future cash flow and (b) the discount rate is
difficult to accurately estimate
What is the ASA definition of a business? -✔✔A commercial, industrial,
service, or investment entity pursuing an economic activity.
What is the dictionary definition of a business? -✔✔(a) a commercial or
industrial enterprise and the people who constitute it, (b) an organization
operated with the objective of making a profit from the sale of goods or
services, (c) an enterprise, commercial entity or firm, in either the private or
public sector, concerned with providing products or services to satisfy
customer requirements
What is the real world definition of a business? -✔✔A group with a
strategy of systems and procedures to utilize assets to meet customer
demand.
Copyright ©EMILLECT 2024. ALL RIGHTS RESERVED. Page 3/32
, What are the four key components of a business? -✔✔Strategy, Systems,
People, Assets
What are the common differences between public and private companies? -
✔✔Size, management depth, product line diversification, geographic
diversification, market position/share, supplier/customer dependence,
access to capital, brand name
What is included in Total Invested Capital? -✔✔Interest-Bearing Debt and
Stockholders' Equity
Preferred stocks generally have precedence over common stock in what
two areas? -✔✔Dividends and liquidation distributions.
What is the formula for Equity FCF? -✔✔Net Income + D&A - Increase in
WC - CapEx + Increase in LT Debt
What is the formula for Invested Capital FCF? -✔✔Net Income + Income
Taxes + Interest Expense - Taxes{Income Taxes/(Net Income + Income
Taxes)} + D&A - Increase in WC - Capex
Calculate the Tax Rate -✔✔Income Taxes/(Net Income + Income Taxes)
Copyright ©EMILLECT 2024. ALL RIGHTS RESERVED. Page 4/32
