CBV LEVEL 1 QUESTIONS WITH CORRECT ANSWERS

RequirementscPriorctocInitialcClientcMeetingc-
ccorrectcanswers✔✔1)cNamecofcthecpartycengagingcthecvaluator
2)cThecsubjectccompanycorccompaniescandcsignificantcshareholders
3)cNaturecofcthecassignmentc(E.g.cValuation,cLosscquantification,ctransaction,cetc)
4)cAnycothercpartycinvolvedc(e.g.cforcdisputescorctransactions)
5)cThecpotentialcuserscofcthecdeliverable
6)cLegalccounselcrepresentingcthecpartiesctocthecdisputec(ifcany)

RequirementscforcthecStartcofcthecInitialcClientcMeetingc-
ccorrectcanswers✔✔1)cTheccontextcofcthecassignmentc(purpose,capplicableclegislation,c
governingccontracts,candcothercrelevantcfactors)

2)cAnticipatedcrolecofcthecvaluatorc(Expert,cAdvocate,corcArbitrator)

RequirementscAftercThecStartcofcthecInitialcMeetingc-ccorrectcanswers✔✔1)cValuation/
losscdate
2)cAppropriatecdefinitioncofcvaluectocbecused
3)cThecsubjectcshares/assets,cetc
4)cThectimecframecforccompletioncofcthecassignment
5)cPaymentctermsc(e.g.capproxc$,cwhociscpaying,cetc)
6)cFinalcreportingcdetailsc(e.g.ctypecofcreport,cwhocitciscaddressedcto,candcmanagementc
representations)

BackgroundcInformationcRequiredcDuringcEarlycPhasescofcClientcEngagmentc-
ccorrectcanswers✔✔1)cBasiccdatacconcerningcthecbusinessc(e.g.caddress,cmanagement
,ccontacts,cauditors,cshareholders,cetc)

2)cWhethercothercexpertscneedctocbecconsulted.cIfcso,ctheirccredentialscshouldcbecconfir
medcincadvance

3)cWhethercanycpriorcvaluations/offers/
discussions,cetcchavecbeencpreparedcforcthecasset/company

4)cValuatorcprovidesclistingcofctypescofcdocumentscneededc(cancoccurcaftercsignedceng
agementciscreceived)

Whatciscancengagementcletter?c-
ccorrectcanswers✔✔AcsummarycofcthecCBV'scunderstandingcofcthectermscofcthecengag
ement.cDetailscfromcthecinitialcclientcmeetingcshouldcbecancintegralcpartcofcthecletter

Theclettercisctheccontractcforcthecvaluationcworkcperformed,ctocsafeguardcbothcthecclient
candcthecCBV
Whatcshouldcancengagementclettercinclude?c-ccorrectcanswers✔✔1)cThecclient
2)cPurposecofcthecassignment
3)cRolecofcthecvaluator
4)cKeycdatesc(e.g.cvaluationcdate)
5)cDefinitioncofcvaluecused
6)cThecentitiescbeingcvalued
7)cAncoutlinecofcworkctocbecperformedcandctimeframe
8)cPaymentcterms/details,cincludingcancestimatedccost
9)cFinalcreportingcdetails

Whatcarecthec3cCategoriescofcQualitativecInformation?c-
ccorrectcanswers✔✔1)cThecCompanyc
2)cThecIndustryc
3)cThecEconomy

SourcescofcQualitativecInformationcGatheredcforc"ThecCompany"c-
ccorrectcanswers✔✔1)cWebsitescandcmarketing
2)cFinancialcstatements/projections
3)cTaxcinformation
4)cActourcofcthecfacilities
5)cManagementcandcownershipcorganizationccharts
6)cShareholdercagreementc&cMajorcleases/contracts
7)cMajorccustomers/Suppliers
8)cEquipment/Real-estatecappraisalsc
9)cMeetingscwithcmanagement,cboardcreports,cshareholdercpresentations

SourcescofcQualitativecInformationcforc"ThecIndustry"c-
ccorrectcanswers✔✔1)cDatacofctheccompetitivecenvironment
2)cTransactionscinvolvingcsimilarcbusinesses
3)cStatisticscfromcGov/Industrycassociations
4)cRegulationscapplicable
5)cAvailabilitycofcrawcmaterials,cskilledcworkers,cetc
6)cNAICScCodesc(tocidentifycthecindustrycandcpublications)

ThecNAICScCodes:cNumberingcSystemc-
ccorrectcanswers✔✔Firstc2cDigitsc=clargestcbusinesscsector
ThirdcDigitc=csubsector
FourthcDigitc=cindustrycgroup
FifthcDigitc=cdesignatescNAICScindustries
SixthcDigitc=cdesignatescnationalcindustries

Porter'scFivecForcesc-ccorrectcanswers✔✔Shouldconlycbecthecfoundation,cbutcincludes:
1)cThreatcofcnewcentrants
2)cBargainingcpowercofccustomers
3)cBargainingcpowercofcsuppliers
4)cThreatcofcsubstitutecproducts/services
5)cRivalrycamongcexistingcfirms

SourcescofcQualitativecInformationcforc"ThecEconomiccEnvironment"c-
ccorrectcanswers✔✔1)cGeneralcEconomiccconditions
2)cStockcandcmoneycmarketcindicators
3)cInflationarycfactors
4)cGeneralccapitalcmarketcconditions

Note:cGlobal,cnational,candcregionalcenvironmentscshouldcbecconsideredcwhencrelevant

AssessingcReliabilitycofcSourcesc-
ccorrectcanswers✔✔1)cBecaware:cCertaincinfociscbiased

2)cSeekccorroborationcifcinfociscquestionable

3)cIfcusingcthecinternet:cknowcthecsourcecandcdon'tcassumecquality.cUsecmultiplecsource
sctocverify

4)cInternetcdataciscdynamic,csocdocumentcit

SWOTcAnalysisc-ccorrectcanswers✔✔Strengths,cWeaknesses,cOpportunities,cThreats

SWOT:cInternalcFactorsc-ccorrectcanswers✔✔StrengthscandcWeaknesses.cIncludes:
c-cFinancialcCapital
c-cPhysicalcCapital
c-cHumancCapital
c-cCustomercCapital
c-cSystem/OrganizationalcCapital

SWOT:cExternalcFactorsc-ccorrectcanswers✔✔OpportunitiescandcThreats.cIncludes:
c-cIndustryc(marketplace)
c-cIndustryc(competitivecforces)
c-cIndustryc(suppliers)
c-cPolitical/economiccfactors
c-cCompetitors

ObjectivescofcQuantitativecAnalysisc-
ccorrectcanswers✔✔1)cIdentifyctrendscandcwhatccausedcthem
2)cIdentifycunusualcandcnon-recurringcitemscandcwhy
3)cEnablecaccomparisoncofcaccompanyctocacpeercgroupcorcindustrycnorms
4)cCreatecacbasiscofcprojectionscorcassessmentcofccompanycprojections

TypescofcQuantitativecAnalysisc-
ccorrectcanswers✔✔1)cTrendcAnalysisc(usecacfullcbusinessccycle)
2)cCommon-sizecanalysis

3)cRatiocanalysisc(liquidity,cturnover,cleverage/coverage,cprofitability)

4)cComparativecFinancialcAnalysis

CBVscMustcPerformcTheircProfessionalcResponsibilitiescWith:c-
ccorrectcanswers✔✔1)cIntegrity,cgoodcfaith,candcdueccare

2)cSustainedcprofessionalccompetencec(keepcinformedcofcdevelopmentscincPracticecSta
ndardscandcRecommendations)

DutiescandcObligationscofcCBVsc-ccorrectcanswers✔✔203)cIntegritycandcdueccare
203.1)cPerformcdutiescwithcintegrity,cgoodcfaith,candcdueccare
203.2)cBeccompetent,cconscientious,cknowledgeable,cdiligent,candcefficientc
204)cMaintaincprofessionalcCompetencec(keepcinformedcofcdevelopmentscincPracticecSt
andardscandcRecommendations).cAcCBVcmustcnotcundertakecassignmentsctheycarecnot
ccompetentctocprovide.

WhatcarecthecTwocMajorcLiabilitycCategoriescforcCBVs?c-
ccorrectcanswers✔✔1)cLiabilitycincContract
2)cLiabilitycincTort

WhatciscLiabilitycincContract?c-
ccorrectcanswers✔✔1)cExistscbetweencpartiescengagedcincaccontract
2)cBasedconcacbreachcofctheccontract

WaysctocBreachcacContractc-ccorrectcanswers✔✔1)cFailurectocperform
2)cFailurectocperformcacstandardcofccare

ImportantcFactorsctocRemembercAboutcContracts:c-
ccorrectcanswers✔✔1)cContractsccancbecwrittencorcoral.cAllcengagementscshouldcideall
ycbecdocumentedcbycacwrittencengagementcletter

2)cContractctermsccancalsocbecimplied

ContractcProvisionscWhencnotcExpressc-
ccorrectcanswers✔✔1)cCourtscassumecancimpliedcwarrantycthatcthecCBVcwillccarrycoutct
heircfunctionscwithcreasonableccare,cknowledge,candcacdegreecofcskill

2)cCBVscfailingctocmeetcthiscprovisioncarecpotentiallycexposedctoccivilccontractcliabilitycifc
thecclientccancprovectheycsufferedceconomicclosses

3)cCourtscunderstandcthatcperfectionciscnotcexpected
WhatciscLiabilitycincTort?c-
ccorrectcanswers✔✔LiabilitycifcthecCBVciscfoundctochavecbreachedccommonclawcdutycof
ccarecandcsomeonecsufferedcanceconomicclosscascacresult

WhatciscacDutycofcCare?c-
ccorrectcanswers✔✔Acdutycofccareciscowedcinccircumstancescwherecthereciscacforeseea
blecriskcofcharmctocanother.

WhereccancDutiescofcCarecArise?c-
ccorrectcanswers✔✔Dutiescofccarecarecalmostcalwayscowedctocacclient.

Example:cCBVccancowecacdutycofccarectocacclient'scbankcifcitciscreasonablecthatcthecban
kcwouldcusecthecinformationcthecCBVcprepared.c(Unlesscancappropriatecexclusioncclaus
ecexists)

Note:cPerfectionciscnotcexpected.