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Business Valuation Exam Questions With
Verified Answers.
What are the 4 approaches to valuation? - answer✔✔1. Asset (Asset-Based) Approach
2. Cost Approach
3. Income (Income-Based) Approach
4. Market (Market-Based) Approach
Appraisal: - answer✔✔Opinion about the worth of something.
Asset-Based Approach - answer✔✔A GENERAL way of determining value based on the value
of the assets net of liabilities.
Adjusted Book Value Method - answer✔✔All assets and liabilities are adjusted to FMV and
netted out.
Adjusted Net Asset Method - answer✔✔The valuation process which produces an estimate of
value by adjusting the company's assets and liabilities to market value, and subsequently
subtracting those liabilities from the assets.
Business Valuation - answer✔✔The act or process of determining the value of a business
enterprise or ownership interest therein.
Control - answer✔✔The power to direct the management and policies of a business enterprise.
Capital Structure - answer✔✔The composition of the invested capital of a business enterprise;
the mix of debt and equity financing.
Capitalization of Earnings - answer✔✔A method of determining the value of a business by
calculating the net present value of expected future profits or cash flows. This is an income-
valuation approach that determines the value of a business by looking at the current benefit of
realizing a cash flow now, rather than in the future.
Capitalization Rate - answer✔✔Any divisor (usually expressed as a percentage) used to convert
anticipated economic benefits of a single period into value.
Cash Flow - answer✔✔Cash that is generated over a period of time by a business.
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Discounted Future Earnings - answer✔✔Discounts the projected future earnings of the company
to determine the fair market value at the valuation date.
Control Premium - answer✔✔An amount or a percentage by which the pro-rata value of a
controlling interest exceeds the pro-rata value of a non-controlling interest in a business
enterprise to reflect the power of control.
Cost Approach - answer✔✔A general way of determining a value indication of an individual
asset by quantifying the amount of money required to replace the future service capability of that
asset.
Cost of Capital - answer✔✔The expected rate of return that the market requires in order to
attract funds to a particular investment.
Discount for Lack of Control - answer✔✔An amount or percentage deducted from the pro rata
share of value of 100% of an equity interest in a business to reflect the absence of some or all of
the powers of control.
Discount for Lack of Marketability - answer✔✔An amount or percentage deducted from the
value of an ownership interest to reflect the relative absence of marketability.
Discount Rate - answer✔✔A rate of return used to convert a future monetary sum into present
value.
Discounted Cash Flow Method: - answer✔✔A method of valuation where the present value of
future expected net cash flows is calculated using a discount rate.
Discounted Future Earnings Method: - answer✔✔A method of valuation where the present value
of FUTURE ECONOMIC BENEFITS (not cash flow like in discounted cash flow method) is
calculated using a discount rate.
Earning Capacity - answer✔✔A person's ability or power to earn money, given the person's
talent, skills, training and experience.
Enhanced Earning Capacity - answer✔✔The enhancement of an individual's ability to earn over
and above what would be earned following a so called normal career path resulting from joint
efforts over the life of the marriage.
Economic Benefits - answer✔✔Inflows such as revenues, net income, net cash flows, etc.
Economic Life - answer✔✔The period of time over which property may generate economic
benefits.
Equity - answer✔✔The owner's interest in property after deduction of all liabilities.
Business Valuation Exam Questions With
Verified Answers.
What are the 4 approaches to valuation? - answer✔✔1. Asset (Asset-Based) Approach
2. Cost Approach
3. Income (Income-Based) Approach
4. Market (Market-Based) Approach
Appraisal: - answer✔✔Opinion about the worth of something.
Asset-Based Approach - answer✔✔A GENERAL way of determining value based on the value
of the assets net of liabilities.
Adjusted Book Value Method - answer✔✔All assets and liabilities are adjusted to FMV and
netted out.
Adjusted Net Asset Method - answer✔✔The valuation process which produces an estimate of
value by adjusting the company's assets and liabilities to market value, and subsequently
subtracting those liabilities from the assets.
Business Valuation - answer✔✔The act or process of determining the value of a business
enterprise or ownership interest therein.
Control - answer✔✔The power to direct the management and policies of a business enterprise.
Capital Structure - answer✔✔The composition of the invested capital of a business enterprise;
the mix of debt and equity financing.
Capitalization of Earnings - answer✔✔A method of determining the value of a business by
calculating the net present value of expected future profits or cash flows. This is an income-
valuation approach that determines the value of a business by looking at the current benefit of
realizing a cash flow now, rather than in the future.
Capitalization Rate - answer✔✔Any divisor (usually expressed as a percentage) used to convert
anticipated economic benefits of a single period into value.
Cash Flow - answer✔✔Cash that is generated over a period of time by a business.
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Discounted Future Earnings - answer✔✔Discounts the projected future earnings of the company
to determine the fair market value at the valuation date.
Control Premium - answer✔✔An amount or a percentage by which the pro-rata value of a
controlling interest exceeds the pro-rata value of a non-controlling interest in a business
enterprise to reflect the power of control.
Cost Approach - answer✔✔A general way of determining a value indication of an individual
asset by quantifying the amount of money required to replace the future service capability of that
asset.
Cost of Capital - answer✔✔The expected rate of return that the market requires in order to
attract funds to a particular investment.
Discount for Lack of Control - answer✔✔An amount or percentage deducted from the pro rata
share of value of 100% of an equity interest in a business to reflect the absence of some or all of
the powers of control.
Discount for Lack of Marketability - answer✔✔An amount or percentage deducted from the
value of an ownership interest to reflect the relative absence of marketability.
Discount Rate - answer✔✔A rate of return used to convert a future monetary sum into present
value.
Discounted Cash Flow Method: - answer✔✔A method of valuation where the present value of
future expected net cash flows is calculated using a discount rate.
Discounted Future Earnings Method: - answer✔✔A method of valuation where the present value
of FUTURE ECONOMIC BENEFITS (not cash flow like in discounted cash flow method) is
calculated using a discount rate.
Earning Capacity - answer✔✔A person's ability or power to earn money, given the person's
talent, skills, training and experience.
Enhanced Earning Capacity - answer✔✔The enhancement of an individual's ability to earn over
and above what would be earned following a so called normal career path resulting from joint
efforts over the life of the marriage.
Economic Benefits - answer✔✔Inflows such as revenues, net income, net cash flows, etc.
Economic Life - answer✔✔The period of time over which property may generate economic
benefits.
Equity - answer✔✔The owner's interest in property after deduction of all liabilities.
