13 questões de Valuation

 Questões de Valuation

(Hitchner/Financial Valuation/2017) Which of the following is the as of date for valuation?

a. Any time within one year

b. As of a single point in time

c. As of a single point in time or six months later

d. Date that the report is signed

Comentários: b. As of a single point in time

The valuation date is always as of a single point in time, typically a day. Valuation of a business is a dynamic, not static, exercise. Values can change constantly, such that a value today may be very different from the value a year from now or even just a few months from now. In the estate tax area, valuations are as of the date of death or six months later. However, this is only for estate tax. The date that the analyst signs the report usually does not coincide with the as of date. The signature date is most often after the valuation date.

(Hitchner/Financial Valuation/2017) This is a detailed report per SSVS. What other types of reports are allowed under SSVS?

Comentários: a. Summary report

b. Calculation report

c. Oral report

(Hitchner/Financial Valuation/2017) The purpose of the valuation of National Fastener is to assist management in internal operational and tax planning. What other purposes are there?

Comentários: Valuations are used for a variety of purposes, including estate tax, income tax, gift tax, ESOPs (employee stock ownership plans), marital dissolution, buying companies, selling companies, shareholder oppression cases, dissenting rights cases, financial reporting, reorganization and bankruptcy, minority stockholder disputes, various types of litigation, and internal planning.

(Hitchner/Financial Valuation/2017) If the analyst belongs to more than one valuation organization with standards, that analyst must comply with the standards of each organization to which he or she belongs.

a. True

b. False

Comentários: a. True. A valuation analyst is responsible only for adherence to the standards of the associations and organizations to which he belongs. For example, a CPA has to comply only with the AICPA standards. That CPA may elect to follow other standards, say, USPAP, but is not required to do so.

(Hitchner/Financial Valuation/2017) Which of these are standards of value?

a. Fair market value, fair value financial reporting, investment value

b. Fair value investment reporting, fair value state actions, intrinsic value

c. Investment value, intrinsic value, equal value

d. Fair market value, equal value, investment value

Comentários: a. Fair market value, fair value financial reporting, investment value.

There are five standards of value: fair market value, investment value, intrinsic value, fair value financial reporting, and fair value state actions.

(Hitchner/Financial Valuation/2017) Valuation conclusions can be presented as:

a. A range of values

b. A single value

c. An estimate of value

d. All of the above

Coments: d. All of the above

Value conclusions can be presented in a variety of formats. It is most often either a single value or a range of values. Values are always estimates, since judgment is applied.

(Hitchner/Financial Valuation/2017) This valuation is being done on a marketable, control interest basis. It is also on a control standalone basis. Name the six levels of value that are considered in a valuation.

Coments:

a. Control strategic

b. Minority/Control standalone liquid

c. Minority liquid

d. Minority nonmarketable

e. Control liquid

f. Control standalone

Control strategic can refer to level of value in a public or a private company. An example of minority/control standalone liquid is the value resulting from the application of the guideline public company method. Some analysts consider the result a minority value. In more recent years, more analysts consider the level of value from the guideline public company method as both minority and control. An example of control liquid is the value derived from the application of the income approach (with control cash flows) where the discount or cap rate is based on returns from the public marketplace. Control standalone is the value of a private company after application of the income approach with a discount to reflect the lesser liquidity of a control interest in a private company versus public stock. An income approach using a rate of return derived from public company data and adjusted for a size risk premium likely reflects a liquid value, but not as liquid as a large company stock. Many small public companies are highly illiquid with large bid/ask spreads (that may contribute to the small size premia).

Publicly traded guideline company data used to calculate a subject value would indicate a marketable liquid value, but the degree of liquidity depends upon the liquidity of the guideline companies used. The guideline company transactions method presumably provides a control, illiquid but marketable conclusion of value. The asset approach would likely indicate a control marketable value, depending on the type of assets and the methods used to value the assets of the subject company. Minority nonmarketable is the value after the consideration of and/or application of all discounts for lack of control and lack of marketability.

Some of these “levels” of value may be higher or lower than the others depending on the circumstances. The DLOM is considered primarily with the bottom three levels for a private company.

This valuation is prepared on a marketable, controlling interest basis.

The valuation industry lacks consensus on the application of discounts for lack of marketability/liquidity in the valuation of controlling interests. Opponents of marketability discounts generally contend that the lack of marketability is reflected in the pricing of the controlling interest. Proponents believe some discount for lack of marketability/liquidity should be made over and above the applied discount rate or price multiple based on public markets. They argue that when comparisons are made to liquid public stocks in the application of a valuation method, liquidity may be embedded in the private company value. In this case, a discount may be appropriate.

(Hitchner/Financial Valuation/2017) The subject of this exercise is a C corporation, but analysts will frequently be required to value noncontrolling interests in S corporations. Valuation of S corporations is one of the most controversial issues in business valuations today. The main issue is how to tax affect S corporation income and, if appropriate, compute an S-corp adjustment. What five models are often considered or used in valuing S corporations?

Comentários:

1. Treharne

2. Van Vleet

3. Mercer

4. Grabowski

5. Fannon

(Hitchner/Financial Valuation/2017) We are valuing a 100 percent controlling interest in National Fastener. The percentage of ownership of individual shareholders is not an issue here. However, assume we are valuing the 55 percent of Tony Atkins as opposed to the 100 percent in National Fastener. The value of a 55 percent interest in National Fastener would be calculated as 55 percent of the 100 percent control value in National Fastener.

a. True

b. False

Comentários: b. False

A 55 percent interest in the Company may not be equal to 55 percent of the 100 percent controlling interest value. The sum of the parts may not equal the whole. Although Tony still controls the corporation with his 55 percent interest, a nuisance value may possibly be attributable to the other three 15 percent interests. Tony does not have complete control and could be exposed at some time in the future to a dissenting rights action or shareholder oppression action. As such, a 55 percent interest would probably be worth somewhat less than a proportional amount of the 100 percent controlling interest value in National Fastener.

(Hitchner/Financial Valuation/2017) Revenue Ruling 59-60 is only applicable to estate, gift, and income tax valuations.

a. True

b. False

Comentários: b. False

Technically, Revenue Ruling 59-60 should be followed when valuing interests for estate, gift, and income taxes. However, Revenue Ruling 59-60 is often relied on and quoted for other valuations as well. It has withstood the test of time.

(Hitchner/Financial Valuation/2017) These are the only eight tenets of value in Revenue Ruling 59-60 that need to be considered.

a. True

b. False

Comentários: b. False

Although there are eight main tenets of value contained in Revenue Ruling 59-60, there are a multitude of other important factors contained in the Revenue Ruling that must also be considered. Other factors include key person discounts, operating versus holding companies, acceptable approaches and methods, and types of historical information.

(Hitchner/Financial Valuation/2017) What types of industries would most likely be affected by anticipated changes in interest rates?

Comentários:

a. Residential housing

b. Banking

c. Auto

d. Manufacturing

Although all industries are ultimately affected by changes in interest rates, these industries would be affected more because changes in interest rates change both supply and demand as well as profit margins.

(Hitchner/Financial Valuation/2017) What two economic indicators are probably the most important in valuation?

a. Unemployment levels and gross domestic product (GDP)

b. Dow Jones Industrial Average and Producer Price Index

c. GDP and inflation

d. Inflation and unemployment levels

Comentários: c. GDP and inflation

Although all economic indicators can be important, typically the two most important ones are historical and anticipated changes in GDP, which measures the real growth of the U.S. economy, and inflation, typically measured through changes in the Consumer Price Index. These two factors affect all industries and can be important in choosing growth rates in both the discounted cash flow and capitalized cash flow methods of the income approach.

(Hitchner/Financial Valuation/2017)

Comentários: