CVA

CVA practice questions, page 5 of 10, with answer review and explanations.

Question 21

Which of the following are categories in which projections are usually necessary?

  1. Antitrust, lost business opportunity, breach of contract
  2. Infringement of patents, copyrights or trademarks
  3. Goodwill
  4. Diversified businesses

Question 22

"When earnings have once been "realized", so that they can be expressed with some approach to accuracy in the company’s accounts, they are already water under the mill and have no direct bearing on what the property in question is now worth. Value, under any plausible theory of capitalized earning power is necessarily forward looking. It is an expression of the advantage that an owner of the property may expect to secure from the ownership in the future. The past earnings are therefore beside the point, save as a possible index of future earnings". This statement correctly expresses:

  1. Realized earnings
  2. Enterprise value
  3. Realized earning verses prospective earnings
  4. Prophesied gross and net earnings

Question 23

One way or the other, the financial benefits of ownership of an interest in a business enterprise must come from the following sources EXCEPT:

  1. Dividends, distributions, or other type of cash flow a) From operations, or b) From investments (e.g. interest)
  2. Liquidation or hypothecation of assets
  3. Loan/Debt
  4. Sale of interest

Question 24

In many instances, value considerations are tempered by internal variables, often variables relative to specific shareholding as opposed to the company as a whole. Which of the following is NOT out of such variables?

  1. Size of the subject interest (reflecting not only magnitude but control issues)
  2. The right to vote and to impact the direction of the business
  3. Restrictive provisions affecting ownership rights
  4. Legal proceedings related to ownership or management prerequisites.

Question 25

1. Dividends or partnership withdrawals (i.e. current economic income). 2. Proceeds from the ultimate sale of the ownership interest or liquidation of the subject business (i.e., including any long-term appreciation in the value of the security interest itself). These two are the categories of:

  1. The economic benefits that the non-controlling ownership interest holder may realize.
  2. The financial benefits that the non-controlling ownership interest holder may realize.
  3. The economic benefits that the controlling ownership interest holder may realize.
  4. The financial benefits that the controlling stakeholder may realize.