1. When developing a single proxy benefit, prior years cash flows should be weighted if the earnings...

Question:

1. When developing a single proxy benefit, prior years’ cash flows should be weighted if the earnings stream displays a consistent trend and un-weighted if there is no identifiable pattern.
a. True
b. False

2. To determine an indicated value using the capitalization of earnings method:
a. The proxy benefit is divided by an appropriate capitalization rate
b. A stream of future benefits is discounted using the capitalization rate
c. A stream of future benefits is discounted using the
d. None of the above are correctly stated

3. Which of the following is not a basic step in the business valuation process?
a. Analyze the information gathered
b. Estimate the value of the business
c. Present the valuation report to the IRS
d. Define the engagement

4. The use of a systematic business valuation process pro-vides order, reasoning, and direction to an engagement.
a. True
b. False

5. It is important to clearly establish the purpose of a valuation engagement because:
a. The court’s rules require it
b. It is the only way to ensure a forensic accountant is paid for his or her efforts
c. It is impossible to perform a valuation without it
d. Professionalism requires it, as purpose clearly establishes the objective of the engagement

6. The two types of business valuation engagements are:
a. Valuation and calculation
b. Valuation and financial statement presentation
c. Calculation and financial statement presentation
d. Valuation and fair value determination

7. A valuation engagement is a comprehensive effort wherein the forensic accountant is responsible for a full development of the case facts and is free to apply the approaches and methods deemed appropriate to arrive at a conclusion of value.
a. True
b. False

8. Which of the following best describes fair market value?
a. The exact selling price of the item being valued
b. A hypothetical sales price for cash of the item being valued
c. An amount agreeable to the seller
d. An amount acceptable to the IRS

9. The fair market value standard assumes that both parties are hypothetical and hold an equal measure of knowledge of the relevant facts and valuation variables.
a. True
b. False

10. Fair value is normally used in dissenting minority interest litigation and is identically defined in all fifty states.
a. True
b. False

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...