ASA BV 201 Questions and Answers Graded A+

ASA BV 201 Questions and Answers
Graded A+
3 economic globalization challenges - ANSWER-1. foreign competitors
2. domestic competitors reducing costs through global sourcing
3. firms forced to become more efficient while expanding geographic reach

3 economic globalization opportunities - ANSWER-1. Access to new markets
2. Ability to tap resources like labor, capital, and knowledge
3. Participate in global production networks

3 Generic strategies for competing: - ANSWER-Overall cost leadership
Differentiation from competitors
Focus on a particular customer group

A FMV is the value to whom? - ANSWER-The most likely buyer

A/R Turnover? - ANSWER-Sales / A/R

Adjust inventory from LIFO to FIFO calculation - ANSWER-Ending 200E LIFO inventory
+ FYE 200E LIFO Reserve

Adjust the Market Multiple for Growth risk - ANSWER-1. take the reciprocal of the
pricing multiple
2. add the growth differential between the subject and the GPC [GPC - subj.]
3. take the reciprocal of that sum

Adjust the Market Multiple for Size risk - ANSWER-1. take the reciprocal of the pricing
multiple
2. add the size differential between the subject and the GPC [subj - GPC]
3. take the reciprocal of that sum

After-Tax Return on Equity? - ANSWER-Net Income Available to Stockholders /
Stockholders Equity

After-Tax Return on Total Assets? - ANSWER-Net Income / Total Assets

An increase in a liability account is a _____ cash flow and __creases cash on hand -
ANSWER-positive
increases (borrowing money from a bank)

An increase in an asset account is a _____ cash flow and __creases cash on hand -
ANSWER-negative
decreases (buying a building)

, Appraisal - ANSWER-expresses an unambiguous opinion

AR Collection Period? - ANSWER-AR / Sales per Day

Are transaction costs included in Fair Value? - ANSWER-No

Are transaction costs included in FMV? - ANSWER-No

Assuming a minority interest, when would you use a Price/Book Value multiple? -
ANSWER-(1) Subject is in an industry that has a meaningful relationship between Book
Value and earnings
(2) ROE can be used to adjust book value to compensate for differences in quality
between companies

Assuming a minority interest, when would you use a Price/Cash Flow multiple? -
ANSWER-(1) Relatively low income compared to D&A
(2) Depreciation represents low functional deterioration

Assuming a minority interest, when would you use a Price/Dividends multiple? -
ANSWER-(1) When the company actually pays dividends
(2) When the company has the ability to pay dividends, even if it does not actually pay
them

Assuming a minority interest, when would you use a Price/Net Earnings multiple? -
ANSWER-(1) Has relatively high income compared to D&A, but considers that D&A is a
good representation of actual wear and tear of the assets
(2) Subject has relatively normal tax rates

Assuming a minority interest, when would you use a Price/Pre-Tax Earnings multiple? -
ANSWER-(1) Has relatively high income compared to D&A
(2) Subject has abnormal tax rates

Assuming a minority interest, when would you use a Price/Sales multiple? - ANSWER-
(1) When the company is "homogeneous" to the guideline companies in terms of
operating expenses
(2) When companies are smaller in size, tend to be cash businesses

At what price do transactions usually take place? - ANSWER-In between (perceived)
investment value and FMV

Calculate adjustment to Retained Earnings (LIFO>FIFO) - ANSWER-FYE 200E LIFO
Reserve x (1 - tax rate)

Calculate COGS - ANSWER-Beginning Inventory + Inventory Purchases - Ending
Inventory