Chapter 10
Valuation
Quiz Questions
Multiple Choice
1. Of the following statements regarding valuation, which is NOT true?
a. Valuation is part science.
b. A valuation is always certain.
c. Valuation is part art.
d. All of the above statements are true.
e. None of the above statements are true.
2. To be at arms’ length means that __________.
a. There is no familial relationship.
b. One party is a subsidiary of the other.
c. The parties have no financial relationship.
d. Both A and B are correct.
e. Both A and C are correct.
3. Of the following, which is not an adjustment made to determine the value of a specific
ownership interest?
a. Controlling interest
b. Marketability
c. Synergistic premium
d. All of the above are adjustments
e. None of the above are adjustments
4. Which of the following is an adjustment to the value of a share because it is not
controlling?
a. A minority discount
b. A marketability adjustment
c. A liquidity adjustment
d. A synergistic premium
e. None of the above
5. This valuation approach relies on prices that similar assets sell for in the marketplace.
a. Market approach
b. Income approach
c. Cost approach
d. Synergistic approach
e. Pratt’s CPS approach
6. Using this valuation method, the cost to re-create the business or asset is calculated.
a. Market approach
b. Income approach
c. Cost approach
d. Synergistic approach
e. Pratt’s CPS approach
7. Income or cash flow serves as the basis for the value of the business or asset when this
valuation approach is used.
a. Market approach
b. Income approach
c. Cost approach
d. Synergistic approach
e. Pratt’s CPS approach
8. Of the following, which is a valuation method used in the market approach to measure
the value of a business?
a. Price-to-ticket revenue ratio
b. Price-to-revenue ratio
c. Price-to-earnings ratio
d. Equity shares sold
e. All of the above
9. This approach to valuation is also referred to as a discounted cash flow analysis or
discounted cash flow approach.
a. Market approach
b. Income approach
c. Cost approach
d. Synergistic approach
e. Pratt’s CPS approach
10. This valuation approach is appropriate for valuing assets for which substitutes could
reasonable be brought or built.
a. Market approach
b. Income approach
c. Cost approach
d. Synergistic approach
e. Pratt’s CPS approach
True/False
1. T or F To be at arm’s length, the parties must not have a subsidiary of the other.
2. T or F A controlling interest allows the owner to control ticket prices, team colors, team
name, and logos.
3. T or F If the distribution of cash flows is based on ownership percentages, the valuation
of control should be reduced.
4. T or F The minority discount is equal to the sum of 100 plus the controlling interest
premium divided by the controlling interest premium.
5. T or F The control premium is generally higher for sport teams than for many other
industries because of ownership benefits such as shelters from federal income
tax and league revenue sharing and future expansion fees.
6. T or F Under the market multiples approach, the value of a company is determined in
reference to the value of comparable firms that have been sold within a
reasonably recent period of time, with appropriate adjustments for the time
value of money.
7. T or F The P/R ratio provides an estimate of how much money an investor will pay for
each dollar of a company’s earnings and allows for comparisons of the market
values of companies of various sizes.
8. T or F In a discounted cash flow analysis, cash flows are taken from the past and
discounted a number of years into the future, using a suitable discount rate.
9. T or F In forecasting revenue growth, considerations must be made for expectations for
new product offerings.
10. T or F An accurate DCF analysis only requires information about all of the net cash
flows accounted for on the team’s financial statements.
Answers to Quiz Questions
Multiple Choice
True/False