Business Valuation
Exam Questions
Course Introduction
Business Valuation is a course designed to equip students with the theoretical foundations and practical tools necessary to estimate the value of businesses in various contexts, such as mergers and acquisitions, investment analysis, and financial reporting. The course explores multiple valuation approaches, including discounted cash flow analysis, comparable company analysis, and precedent transactions, while emphasizing the importance of industry dynamics, financial statement analysis, and market conditions. Through case studies and real-world examples, students learn to apply valuation techniques, interpret results, and critically assess the assumptions underpinning valuation models, preparing them for roles in corporate finance, investment banking, consulting, and entrepreneurship.
Recommended Textbook
Financial Reporting Financial Statement Analysis and Valuation 7th Edition by James M. Whalen
Available Study Resources on Quizplus 14 Chapters
1065 Verified Questions
1065 Flashcards
Source URL: https://quizplus.com/study-set/2796 Page 2
Chapter 1: Overview of Financial Reporting, Financial
Statement Analysis, and Valuation
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/55698
Sample Questions
Q1) Current assets are defined as
A) cash and cash equivalents.
B) all assets expected to be quickly used by the firm.
C) cash and other assets that the firm expects to sell or consume during the normal operating cycle of a business, usually one year.
D) cash and other assets that the firm expects maintain for a period including the normal operating cycle of a business, usually one year.
Answer: C
Q2) Opinions on the effectiveness of the internal control system and the fairness of the amounts reported in the financial statements are known as:
A) Management Discussion and Analysis.
B) Assurance Opinions.
C) Notes to the Financial Statements
D) Management Assessments.
Answer: B
Q3) The higher the value added from any activity,the higher should be the ____________________ from engaging in that activity.
Answer: profitability
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Asset and Liability Valuation and Income Measurement
Available Study Resources on Quizplus for this Chatper
80 Verified Questions
80 Flashcards
Source URL: https://quizplus.com/quiz/55699
Sample Questions
Q1) At origination which of the following temporary differences would create a deferred tax asset?
A) Tax basis of an asset exceeds its financial reporting basis.
B) Tax basis of a liability exceeds its financial reporting basis.
C) Financial reporting basis of an asset is equal to its tax basis.
D) Financial reporting basis of an asset exceeds its tax basis.
Answer: A
Q2) Firms may not include all income taxes for a period on the line for income tax expense in the income statement.Other places that income tax expenses may occur include all of the following except:
A) Discontinued Operations
B) Extraordinary Items
C) Other Comprehensive Income
D) Common Stock
Answer: D
Q3) Stockholders' equity can be expanded into the following three accounts: contributed capital,retained earnings and
Page 4
Answer: accumulated other comprehensive income
To view all questions and flashcards with answers, click on the resource link above.
Chapter 3: Income Flows Versus Cash Flows: Understanding
the Statement of Cash Flows
Available Study Resources on Quizplus for this Chatper
88 Verified Questions
88 Flashcards
Source URL: https://quizplus.com/quiz/55700
Sample Questions
Q1) When net income is high relative to operating cash flows,we describe the firm as having recorded
A) income-decreasing accruals.
B) income-increasing accruals.
C) income-neutral accruals.
D) abnormal accruals.
Answer: B
Q2) Which statement is false regarding the preparation of the indirect method of the statement of cash flows?
A) An increase in merchandise inventory is subtracted from net income.
B) Depreciation expense is added to net income.
C) An increase in accounts receivable is added to net income.
D) An increase in accounts payable is added to net income.
Answer: C
Q3) The acquisition of new investments would be classified as ____________________ activities in the statement of cash flows.
Answer: investing
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Profitability Analysis
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/55701
Sample Questions
Q1) Firms with high operating leverage have a higher proportion of _________________________ in their cost structure.
Q2) Hall and Porter argue that firms have two generic alternative strategies for any particular product.These strategies are
A) low risk focus, low risk focus
B) retail customer focus, wholesale customer focus
C) product differentiation, low-cost leadership
D) low operating leverage, high operating leverage
Q3) Multiples of EPSto value firms are referred to as.
A) ROA
B) price-earnings ratios
C) ROCE
D) Weighted average number of common shares outstanding
Q4) Discuss the economic characteristics of firms that have the following mix of profit margin and asset turnover.In addition provide an example of an industry that would have the relevant profit margin asset turnover mix:
A.High profit margin and low asset turnover.
B.Low profit margin and high asset turnover
To view all questions and flashcards with answers, click on the resource link above.
6
Chapter 5: Risk Analysis
Available Study Resources on Quizplus for this Chatper
81 Verified Questions
81 Flashcards
Source URL: https://quizplus.com/quiz/55702
Sample Questions
Q1) Morrow Company currently has a current ratio of 1.1.The company decides to borrow
$1,000,000 from First National Bank for a period of six months.After the borrowing Morrow's current ratio will be
A) greater than 1.1
B) 1.1
C) less than 1.1
D) unable to determine with out more information
Q2) The source of risk related to management competence,strategic direction and lawsuits is _________________________.
Q3) Long-term ______________________________ represents the longer-term ability of the firm to generate cash internally or from external sources to satisfy plant capacity and debt repayment needs.
Q4) The best indicator for assessing a firm's long-term solvency risk is its ability to generate what over a period of years?
A) Sales
B) Earnings
C) Positive cash flows
D) Income from continuing operations
Q5) Beta captures the _________________________ of the firm.
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Financing Activities
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/55703
Sample Questions
Q1) The acceptable method of accounting for stock options is the _________________________ method.
Q2) Which of the following is the date on which a company incurs a legal liability to distribute the dividend to owners of the stock?
A) date of record
B) commitment date
C) date of declaration
D) date of payment
Q3) Under an operating lease agreement the lessee recognizes ______________________________ each period that the leased asset is used.
Q4) Which is the first date when employees can exercise their stock options?
A) vesting date
B) grant date
C) exercise date
D) liquidating date
Q5) The first date at which employees can exercise their stock options is termed the _________________________.
Q6) The _________________________ is the date a firm gives a stock option to employees.
Page 8
To view all questions and flashcards with answers, click on the resource link above.
Chapter 7: Investing Activities
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/55704
Sample Questions
Q1) All of the following are typically costs that fail the future benefits test of long-lived operating assets except:
A) costs related to research and development
B) costs related to marketing
C) costs related to brand-building activities
D) costs of equipment used in production
Q2) Currently,the FASB's Statements of Accounting Concepts (Nos.5 and 6)define an asset as having all of the following characteristics except:
A) costs not guided by management's judgment
B) probable future benefits
C) resulting from past transactions and events
D) something that is obtained/controlled by the entity
Q3) Unrealized holding gains or losses which are recognized in the income statement are from securities classified as
A) trading
B) available for sale
C) held-to-maturity
D) equity
To view all questions and flashcards with answers, click on the resource link above.
9
Chapter 8: Operating Activities
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/55705
Sample Questions
Q1) Which of the following statements best describes the difference between U.S.GAAP and IFRS with respect to revenue recognition?
A) IFRS has a substantial amount of industry specific guidance for revenue recognition.
B) IFRS revenue recognition is not consistent with U.S. GAAP in principle.
C) There are subtle differences in the wording of U.S. GAAP as compared with IFRS.
D) IFRS has four criteria and U.S. GAAP has five conditions for revenue recognition.
Q2) Which of the following will most likely help identify an increasing proportion of uncollectible sales?
A) accounts receivable turnover
B) the ratio of bad debt expense to sales
C) the ratio of sales returns to sales
D) the ratio of cost of sales to sales
Q3) Companies that engage in long-term contracts can recognize income using either the _____________________________________________ method or the ________________________________________ method.
completed contract,percentage-of-completion
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Accounting Quality
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/55706
Sample Questions
Q1) When a company makes a change in an estimate that it has used in its financial statements,it should account for the change by
A) retroactively restating all prior financial statements
B) treat the change as a cumulative effect change in accounting estimate
C) spread the effect of the change over the current and future periods
D) companies are not allowed to make changes to estimates
Q2) Which of the following is not a characteristic of an extraordinary item?
A) Unusual in nature
B) Infrequent in occurrence
C) Material in amount
D) Subject to a firm commitment
Q3) Many users of financial statements believe that the quality of accounting information for intangible assets is low because firms seldom report intangible asset resources on the balance sheet.However,from the perspective of accounting quality what are arguments in favor of expensing most intangibles and not recording them on the balance sheet?
Q4) When evaluating the quality of accounting information the user should consider the ____________________ of the firm's disclosures.
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Forecasting Financial Statements
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/55707
Sample Questions
Q1) If a company has very low operating leverage (i.e.a low proportion of fixed costs in the cost structure)and no changes are expected in operations
A) percentage change income statement percentages can serve as the basis for projecting operating expenses.
B) using common-size income statement percentages will overstate future projected operating expenses.
C) using common-size income statement percentages will understate future projected operating expenses.
D) using common-size income statement percentages can serve as a reasonable basis for projecting future operating expenses.
Q2) As a firm progresses through the introduction life-cycle stage,what type of flexible account will it be more likely to use to balance the balance sheet?
A) dividends.
B) growth related assets.
C) issued equity.
D) stock buy-backs.
Q3) Realistic expectations are ____________________ and ____________________.
To view all questions and flashcards with answers, click on the resource link above.
12
Chapter 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/55708
Sample Questions
Q1) All of the following are steps in the analysis and valuation framework used to understand the fundamentals of a business and determine estimates of its value except:
A) Analyze the firm's strategy in terms of the competition.
B) Assess the quality of the firm's accounting and financial reporting.
C) Derive forecasts of future earnings from the firm's projected financial statements.
D) Obtain the national ranking of the firm's external auditors.
Q2) In what case will using dividends expected to be paid to shareholders yield the same valuation for the firm as using free cash flows expected to be generated by the firm?
Q3) Provide the rationale for using expected dividends in a valuation model.
Q4) Because the market equity beta reflects the level of operating leverage,financial leverage,variability of sales,and other characteristics of a firm,there are situations where an analyst might have to adjust the beta because of changes in the capital structure.A situation that might require an analyst to estimate a new levered beta is a
Q5) If dividend projections include the effect of inflation,then the discount rate used should be a ____________________ rate.
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Valuation: Cash-Flow-Based Approaches
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/55709
Sample Questions
Q1) Free cash flow from operations equals cash flow from operations adjusted for net interest after tax and adjusted for
Q2) The analyst can use expectations of the dividends to be paid to the investor or the free cash flows to be generated by the firm (that will ultimately be paid to the investor)as equivalent approaches to measure the ____________________ expected payoffs to shareholders.
Q3) Nonsystematic risk factors would include all of the following except:
A) the sustainability of the firm's strategy
B) the firm's ability to generate revenue growth
C) the firm's ability to control expenses
D) unemployment levels
Q4) ____________________ is an estimate of systematic risk based on the degree of covariation between a firm's stock returns and an index of stock returns for all firms in the market.
Q5) If the objective is to value operating assets net of operating liabilities of a firm then the appropriate free cash flow measure to be used is
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Valuation: Earnings-Based Approaches
Available Study Resources on Quizplus for this Chatper
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/55710
Sample Questions
Q1) Explain required income.What does required income represent? How is required income conceptually analogous to interest expense?
Q2) The residual income valuation model is a rigorous and straightforward valuation approach, but the analyst should be aware of all of the following implementation issues that will hinder its ability to measure firm value correctly except:
A) common stock transactions.
B) portions of net income attributable to equity claimants other than common shareholders.
C) dirty surplus accounting items.
D) positive book value of equity.
Q3) Assume that a firm's book value at the beginning of the year is $12,500 and that the firm reports net income of $3,200 and pays dividends of $1,100<sub>.</sub> What will the firm's book value at the end of the year?
A) $2,100
B) $15,700
C) $14,600
D) $16,800
Q4) What is the rationale for using expected earnings as a basis for valuations?
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Valuation: Market-Based Approaches
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/55711
Sample Questions
Q1) A company with a PEG ratio of greater than one would be interpreted as having a stock price
A) that is consistent with the company's growth prospects
B) that is low relative to the company's growth prospects
C) that is high relative to the company's growth prospects
D) that is undervalued
Q2) Under the value-to-book model a firm will be valued below book value when
A) the ROCE is greater than R<sub>E</sub>
B) the ROCE is equal to R<sub>E</sub>
C) the ROCE is less than R<sub>E</sub>
D) the firm's growth rate is above the industry average
Q3) The value-to-book ratio reflects an analyst's expectation of the firm's ____________________ value to book value.
Q4) Under the value-to-book model new projects will be abnormally profitable only when
A) ROCE equals ROA
B) ROCE equals R<sub>E</sub>
C) ROCE is greater than R<sub>E</sub>
D) ROCE is less than R<sub>E</sub>
Q5) Explain the analysts' role in making the capital markets efficient.
Page 16
To view all questions and flashcards with answers, click on the resource link above.