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AMERICAN SOCIETY OF APPRAISERSBusiness ValuationPrinciples of ValuationCourse OutlinesBV201BV202BV203BV204

INTRODUCTIONQuestions on the ASA’s eight hour Business Valuation Challenge Exam are based on the contentof the four ASA Business Valuation Principles of Valuation (POV) courses: BV201: Introduction to Business Valuation, Market ApproachBV202: Introduction to Business Valuation, Income ApproachBV203: Introduction to Business Valuation, Asset Approach,Discounts and PremiumsBV204: Advanced Topics in Business ValuationThe following outlines for each course are intended to describe the general topics that arecovered in the POV courses and tested on the Challenge Exam. With the exception of contentrelated to the ASA’s Business Valuation Standards, all other content is found in most if not all ofthe publicly-available books and materials related to business valuation, including withoutlimitation: Trugman, Gary R. Understanding Business Valuation: A Practical Guide to ValuingSmall to Medium Sized Businesses. New York: AICPA, 2008, 2012. Print.Pratt, Shannon P. Valuing a Business: The Analysis and Appraisal of Closely HeldCompanies. New York: McGraw-Hill, 2008. Print.Hitchner, James R. Financial Valuation Applications and Models. Hoboken: JohnWiley & Sons, 2003. Print.Fishman, Jay E., Shannon P. Pratt, and James R. Hitchner, PPC’s Guide to BusinessValuations.Business Valuation Review. American Society of Appraisers.Business Valuation Update. Business Valuation Resources.A .pdf copy of the ASA’s Business Valuation Standards can be downloaded from the followingweb page: ards-ethics10/01/2016ASA Business Valuation POV Course OutlinesCopyright 2016. American Society of Appraisers1

BV201: Introduction to Business Valuation,Market Approach1. INTRODUCTIONa. The Business Appraisal Professionb. Necessary Business Appraisal Skills and Qualifications2. BUSINESS VALUATION THEORYa. Comparison with Real Estate Appraisalsb. Three Approaches to Valuec. Basic Description of a Businessd. Organizational Structure ofe. Financial Structure of Businessf. Basic Concept of Valueg. Value vs. Cost vs. Priceh. Standards of Valuei. Premise of Valuej. Basic Variables Affecting Valuek. The Role of IRS Rulingsl. The Role of Key Court Casesm. The Role of Financial Accounting Standards Board Guidancen. Steps of a Business Appraisal3. DEFINING THE APPRAISAL ASSIGNMENTa. ASA Business Valuation Standards BVS-Ib. Pre-Engagement Assessmentc. What is Being Appraisedd. The Effective Date of Appraisale. The Scope of the Appraisalf. Engagement Lettersg. The Purpose and Intended Use of the Valuationh. Professional Obligation of the Appraiseri. Professional Standards4. DATA GATHERING10/01/2016ASA Business Valuation POV Course OutlinesCopyright 2016 - American Society of Appraisers2

a. Data Gathering via the Internetb. General Informationc. Economic and Industry Datad. Specific Data Sources5. GENERAL ECONOMIC AND POLITICAL ANALYSISa. The Globalization of Economic Factorsb. Country-Specific (National) Economic Factorsc. Regional and Local Economic Factors6. INDUSTRY ANALYSISa. Porter’s Five Forces and Generic Strategies7. COMPANY ANALYSISa. Applying the Business Appraiser’s Analysis to the Companyb. Financial Performance Analysisc. Company Risk Factorsd. Analytical Frameworkse. SWOT Analysisf. Company-Specific Value Drivers8. OVERVIEW OF THE MARKET APPROACHa. Basic Principles Underlying the Market Approachb. Basic Steps of the Market Approach Processc. ASA Standards and Definitions9. GPC STEP 1—GUIDELINE PUBLIC COMPANY SEARCH AND SELECTIONa. Overview of the Guideline Public Company (GPC) Methodb. ASA BVS-1 Conceptual Framework and Guidancec. GPC Selection Processd. Getting and Setting up the GPC Financial Statements10. GPC STEP 2—NORMALIZE FINANCIAL STATEMENTSa. ASA SBVS-1 Guidance 1b. Accounting Translation Adjustments11. GPC STEPS 3-4—CALCULATION & SELECTION OF MULTIPLESa. ASA SBVS-1 Guidance for the Calculation and Selection of Multiplesb. GPC Step 3—Calculating Market Multiplesc. Which Multiples Should Be Used?10/01/2016ASA Business Valuation POV Course OutlinesCopyright 2016 - American Society of Appraisers3

d. Time Period for Financial Operating Metricse. Useful Summary Measures – Statistical Toolsf. GPC Step 4 – Selection of the Appropriate Type of Market Multiples to Use12. GPC STEPS 5-6—COMPARE AND ADJUST GPC MULTIPLESa. GPC Step 5—Comparative Analysisb. Comparative Qualitative Factors to Considerc. Comparative Quantitative Financial Performance Factors to Considerd. GPC Step 6—Adjusting the GPC Market Multiples – the Key Stepe. Qualitative and Quantitative Techniques for Adjusting Market Multiples13. GPC STEPS 7-9—APPLY MULTIPLES, RECONCILE AND ADJUSTa. Step 8 – Reconcile the Different Indications of Valueb. Step 9 – Consider Applying Appropriate Discounts or Premium14. THE MERGER AND ACQUISITION METHODa. Database Inconsistencies and Analytical Issuesb. Analytical Proceduresc. Equity Multiplesd. Invested Capital Multiplese. Closer Examination of Common Data Sources for Small Businesses15. RULES OF THUMB AND OTHER MARKET METHODSa. Rules of Thumbb. Prior Transactions in the Subject Company’s Stockc. Buy-Sell Agreementd. Bona Fide Offers to Buye. Analysis of Acquisitions Made by the Company10/01/2016ASA Business Valuation POV Course OutlinesCopyright 2016 - American Society of Appraisers4

BV202: Introduction to Business Valuation,Income Approach1. OVERVIEW OF THE INCOME APPROACHa. Definition and Methodsb. Benefit Streamc. Conversion of Anticipated Benefits to Value2. ECONOMIC BENEFITSa. Measures of Economic Benefitsb. Equity Versus Invested Capital Income Measuresc. Selecting an Appropriate Benefits Measure for the Subject Companyd. Adjustments to Subject Company Financial Statements3. PROJECTING FINANCIAL STATEMENTSa. Sources of Projectionsb. Factors to Considerc. Methods of Projectingd. Developing the Projectione. Problems with Projecting as a Percentage of Salesf. Analysis of Management Projectiong. Projections of Nonlinear Relationshipsh. Special Considerations for Projecting Stub Periodsi. Common Errors in Projecting4. CAPITALIZATION OF BENEFITS METHODa. Definitions and Formulab. Components of the Capitalization of Benefits Methodc. Other Uses of Capitalization of Benefits Methodd. Sensitivity of Value to the Capitalization Ratee. Capitalization Rates for Other Income Measures5. DISCOUNTED FUTURE BENEFITS METHOD.99a. Definitions and Formulab. Key Elements in the Methodc. Sensitivity Analysis10/01/2016ASA Business Valuation POV Course OutlinesCopyright 2016 - American Society of Appraisers5

6. INTRODUCTION TO DISCOUNT RATESa. Definition and Terminologyb. Relationship Between Risk and the Discount Ratec. Types of Riskd. Characteristics of the Discount Ratee. Two Main Measures of Discount Rate7. DEVELOPING THE EQUITY DISCOUNT RATEa. Methods to Estimate the Equity Discount Rateb. Components of the Cost of Equityc. Overview of the Buildup Methodd. Risk Free Rate of Returne. Equity Risk Premiumf. Size Premiumg. Re-levering the Equity Risk Premiumh. Industry Risk Premiumi. Company Specific Risk Premiumj. Application of Buildup Discount Ratesk. Cost of Equity for Start-up and Early Stage Companies8. THE CAPITAL ASSET PRICING MODELa. History and Derivationb. Key Assumptions of CAPMc. Derivation and Use of Betasd. Challenges to CAPM172e. Application of CAPM Discount Rates9. WEIGHTED AVERAGE COST OF CAPITALa. Definition and Formulab. Cost of Common Equity (ke)c. Cost of Debt (kd)d. Tax Ratee. Capital Structuref. Application of WACC Discount Rates10. LEVELS OF VALUEa. General Levels of Value10/01/2016ASA Business Valuation POV Course OutlinesCopyright 2016 - American Society of Appraisers6

b. How Methodology Affects Resulting Valuec. Level of Value from the Income Approachd. Level of Value from the Asset Approache. Level of Value from the Market Approachf. Application of the DLOC and DLOM10/01/2016ASA Business Valuation POV Course OutlinesCopyright 2016 - American Society of Appraisers7

BV 203: Introduction to BusinessValuation, Asset Approach, Discountsand Premiums1. The Asset Approach to Valuationa. Theoretical basisb. Definitions and terminologyc. Net Asset Value Methodd. Traditional Excess Earnings Methode. Multi-Period Excess Earnings Methodf. Level of Value from Asset Approach2. Valuation Adjustmentsa. Entity level and Shareholder level discountsb. Levels of value3. Premium for Controla. Prerogatives of controlb. Diversity in practice: Does the guideline public company method yield a controllevel value?c. Economic benefits of controld. Business characteristics influencing the premium for controle. Historical premium and transaction dataf. Challenges with using observed premiums for control4. Discount for Lack of Controla. Degree of controlb. Protection of non-controlling interests: agreements and statutesc. Undivided partial interestsd. DLOC approaches, methods, and procedures5. Discount for Lack of Marketabilitya. Marketability versus liquidityb. DLOM for control interestsc. DLOM qualitative analysisd. DLOM approaches, methods, and procedures6. Application of Discounts10/01/2016ASA Business Valuation POV Course OutlinesCopyright 2016 - American Society of Appraisers8

7. Other Valuation Adjustmentsa. Key person discountb. Blockage discountc. Discount from NAVd. Non-homogenous/portfolio discounte. Non-voting interestsf. Embedded capital gains8. Reconciling Values9. Report Writinga. USPAP reporting standardsb. ASA reporting standards10/01/2016ASA Business Valuation POV Course OutlinesCopyright 2016 - American Society of Appraisers9

BV204: Advanced Topics in Business Valuation1. Pass-Through Entitiesa. Attributes of a pass-through entity (PTE)b. Advantages and disadvantages of PTE tax statusc. Differences between PTEs and C corporationsd. Major Tax Court cases relating to valuation of PTEse. Diversity of practice: Tax-affect or notf. Arguments for and against tax-affecting the earnings of PTEsg. Impact of distribution policies on the expected future benefit stream to owner ofan interest in a PTEh. PTE valuation methods2. Valuation of Early Stage Entities & Entities with Complex Capital Structuresa. Stages of development and relevance to the valuation assignmentb. Complex capital structures: classes of equities and equity derivativesc. Equity allocation methodsd. Inputs/variables in the equity allocation processe. Fair value of debt3. Intangible Assetsa. Reasons to value intangible assetsb. Definitions of intangible assetsc. Categories and types of intangible assetsd. Define bundle of legal rights associates with the subject intangible assete. Intangible asset valuation approachesf. Risk-based hierarchy of discount rates of and rates of return on assetsg. Remaining useful lifeh. Tax amortization benefiti. Goodwill: Personal and entity4. Valuation of Debt and Preferred Stocka. Risk-based hierarchy of discount rates of and rates of return on capitalb. Valuing debti. Reasons to value debtii. Characteristics of debt10/01/2016ASA Business Valuation POV Course OutlinesCopyright 2016 - American Society of Appraisers10

iii. Risks associated with debtiv. Debt and embedded optionsv. Term structure of interest ratesvi. Valuation methodsvii. Credit analysis and credit ratingsc. Valuing preferred stocki. Reasons to value preferred stockii. Characteristics of preferred stockiii. Valuation methodsd. Valuation adjustments (discounts/premiums)10/01/2016ASA Business Valuation POV Course OutlinesCopyright 2016 - American Society of Appraisers11

Wiley & Sons, 2003. Print. Fishman, Jay E., Shannon P. Pratt, and James R. Hitchner, PPC’s Guide to Business Valuations. Business Valuation Review. American Society of Appraisers. Business Valuation Update. Business Valuation Resources. A .pdf copy of the ASA’s Business Valuation Standards can be downloaded from the following

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