1. Organizations that are referred to as flow-through organizations are so named because:

A. A significant amount of revenue flows through these successful types of businesses.

B. Revenues that are generated by the business flow-through directly to the bottom line of the entitys income statement.

C. Income taxes are levied on the earnings of such entities before the income flows-through to the owners.

D. Income earned by the flow-through entity is not taxed at the entity, but instead the earnings flow-through to the owners before they are taxed.

2. Apparently, the IRS and the Federal Tax Court would maintain that when valuing flow-through entities, the valuation professional should:

A. assign a premium to the value of a flow-though entity compared to an otherwise identical C corporation entity.

B. assign a discount to the value of a flow-though entity compared to an otherwise identical C corporation entity.

C. look at other detailed analysis of the two organizations before making a decision about the valuations.

D. The IRS and the Federal Tax court have chosen to give no indication of their position on this topic.

3. If a business valuation expert determines that the closely-held business being valued possesses a significant risk because of its small size in comparison with many of its chief competitors, the valuation expert will most likely:

A. ignore the business size issue because clearly the business has been competing with larger firms all along.

B. understand that the size issue is a potentially major risk and adjust for this risk in both the discount rate used in the valuation and by assigning a discount to the base valuation.

C. understand that the size issue is a potential major risk and adjust for this risk either by adjusting the discount rate used in the valuation or by assigning a discount to the base valuation. One or the other should be done, but the valuation expert should not double count the risk by doing both.

D. None of the answers above are correct.