Question: 1 If prospective data are not provided by the management

1. If prospective data are not provided by the management of a company being valued, such data should be estimated by the forensic accountant.
a. True
b. False

2. Historical data are preferable to prospective data for each of the following reasons except:
a. They are based on actual events
b. They are more accepted or meaningful to fact finders
c. There is less likelihood of challenge in an adversarial litigation setting
d. Use of such data is mandated by the IRS

3. In the context of business valuation, the discount rate is known as:
a. The risk- free rate of return
b. The required rate of return
c. The actual rate of return
d. The accounting rate of return

4. How is an appropriate discount rate commonly determined?
a. Using ROE as a proxy
b. Using the firm’s current bank borrowing rate
c. Using the buildup method
d. Using the forensic accountant’s best estimate based on his or her experience

5. When employing the buildup method, each of the following is a consideration except:
a. An industry risk premium
b. Risk- free rate
c. The firm’s size
d. A premium for specific- company risk
e. All of the above are considerations in the buildup method

6. 11-56. Which of the following is considered an objective source of information for use in building a required rate of return?
a. The IRS interest rate database
b. The Chicago Board of Trade
c. The Treasury Database
d. Ibbotson SBBI

7. Capitalization is a method in which expected future benefits are compressed into a single value, which is then divided by the capitalization rate.
a. True
b. False

8. When using the capitalization of earnings method, the two primary issues are:
a. A single proxy benefit and a discount rate
b. An estimated stream of future benefits and a capitalization rate
c. A single proxy benefit and a capitalization rate
d. An asset base and a capitalization rate

9. Which of the following earnings streams is most commonly used in business valuations? a. Net income b. Net cash flow from investing activities c. Net cash flow from operations d. Net income plus depreciation

10. Which of the following correctly sets forth the process of converting a discount rate to a capitalization rate?
a. The discount rate minus the expected growth rate of the proxy benefit
b. The discount rate minus the expected growth rate of sales
c. The discount rate plus an inflation premium
d. The discount rate minus the prime lending rate

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