Private Company Valuation – Question Bank
LO.a: Compare public and private company valuation.
1. Which of the following best explains differences between public and private companies?
A. Private companies offer higher compensation relative to public companies and
consequently attract superior management.
B. Public companies are generally more transparent in their financial reporting and more
significantly impacted by taxes than private companies.
C. In most private firms, management has a controlling ownership interest due to which
decision-making takes a longer term perspective compared to public companies.
LO.b: Describe uses of private business valuation and explain applications of greatest
concern to financial analysts.
2. Which of the following is least likely a purpose for valuing private companies? Valuation
performed for:
A. initial public offering.
B. a share repurchase from the public.
C. venture capital financing.
LO.c: Explain various definitions of value and demonstrate how different definitions can
lead to different estimates of value.
3. The value of a company specific to a particular buyer based on his perceived risk and
benefits is known as: A. intrinsic value.
B. investment value.
C. fair value.
LO.d: Explain the income, market, and asset-based approaches to private company
valuation and factors relevant to the selection of each approach.
4. Firm A is a struggling company in the manufacturing industry. Demand for the company’s
products has declined markedly over the last two years and is unlikely to pick up again. Firm
B is an established company in the dairy industry with a steady and predictable cash flow.
The best way to value these companies is:
A. asset-based valuation for Firm A and income-based valuation for Firm B.
B. asset- based valuation for both Firm A and Firm B.
C. asset -based valuation for Firm B and income-based valuation for Firm A.
LO.e: Explain cash flow estimation issues related to private companies and adjustments
required to estimate normalized earnings.
5. Which fof fthe ffollowing fitems fneeds fadjustment fwhen fforecasting fearnings fof fprivate
fcompanies? f
Copyright © IFT. All rights reserved. Page 1
LO.a: Compare public and private company valuation.
1. Which of the following best explains differences between public and private companies?
A. Private companies offer higher compensation relative to public companies and
consequently attract superior management.
B. Public companies are generally more transparent in their financial reporting and more
significantly impacted by taxes than private companies.
C. In most private firms, management has a controlling ownership interest due to which
decision-making takes a longer term perspective compared to public companies.
LO.b: Describe uses of private business valuation and explain applications of greatest
concern to financial analysts.
2. Which of the following is least likely a purpose for valuing private companies? Valuation
performed for:
A. initial public offering.
B. a share repurchase from the public.
C. venture capital financing.
LO.c: Explain various definitions of value and demonstrate how different definitions can
lead to different estimates of value.
3. The value of a company specific to a particular buyer based on his perceived risk and
benefits is known as: A. intrinsic value.
B. investment value.
C. fair value.
LO.d: Explain the income, market, and asset-based approaches to private company
valuation and factors relevant to the selection of each approach.
4. Firm A is a struggling company in the manufacturing industry. Demand for the company’s
products has declined markedly over the last two years and is unlikely to pick up again. Firm
B is an established company in the dairy industry with a steady and predictable cash flow.
The best way to value these companies is:
A. asset-based valuation for Firm A and income-based valuation for Firm B.
B. asset- based valuation for both Firm A and Firm B.
C. asset -based valuation for Firm B and income-based valuation for Firm A.
LO.e: Explain cash flow estimation issues related to private companies and adjustments
required to estimate normalized earnings.
5. Which fof fthe ffollowing fitems fneeds fadjustment fwhen fforecasting fearnings fof fprivate
fcompanies? f
Copyright © IFT. All rights reserved. Page 1
