ABV Part II Study Questions
The weights applied to debt and equity in calculating the WACC under fair market value should be?
Market values of debt and equity, regardless of whether a minority or controlling interest is being appraised. It is important that the appraiser understand that the development of WACC necessitates using debt and equity at market values, regardless of control or minority, but the selected proportions of debt and equity (measured at market values) will differ depending upon whether control or minority is being appraised.
Which is NOT an expected rate of return? a. Cap rate b. Discount rate c. WACC d. Cost of equity
d. Cost of equity
Which statement is NOT correct? a. Like fixed assets, intangibles wear out b. Legal, regulatory, or contractual provisions may limit the intangible asset's useful life c. Market forces, obsolescence, replacements, and operation enhancements deteriorate the value of intangible assets d. Intangible value appreciates over time an there is no useful life
d. Intangible value appreciates over time an there is no useful life
An advantage of an asset approach is?
Net tangible assets can be valued reliably under this approach. Net tangible assets can be valued reliably is an advantage of the method.
When capitalizing the historic cash flows of a subject company, the following factors exist 1. The company operates in a cyclical industry 2. 10 years of financial statements are available 3. There is no established trend in bottom line profits 4. The company has maintained approximately the same market position, customer base, and personnel over the past 15 yeras. All else being equal, how many years of historic cash flows would most likely be used in the capitalization
Seven years, because this is the length of the economic cycle for the company's industry
Under the asset approach, what is an argument for not tax-affecting the write-up of assets to fair market value?
Tax can be permanently deferred or deferred for a long time. An argument for not tax-effecting the write-up of an asset to fair market value is that if a company plans on never selling the asset it is writing up to fair market value, it will never have to pay tax on the write-up. If a company plans on holding onto the asset for a long time and then selling it, it will incur tax on any gains in the sale of the asset, but it will be so far off in the future that the present value of these taxes will make them negligible.
Which of the choices below does not explain the cost of capital?
The Company's systematic risk, plus the Company's specific risk under the Modified Capital Asset Pricing Model. Under the Capital Asset Pricing Model, systematic risk (Beta) is multiplied by the equity risk premium and then the risk-free rate, specific company risk, and size premium are added to determine the discount rate.
In the application of the capitalization of earnings methodology, which statement is the most correct? a. The cost basis of the net tangible assets is used in calculating the expected return on tangible assets b. Non-operating assets should generally be excluded from the calculation of the return on tangible assets c. Non-operating assets should be included in calculating the return on tangible assets d. Non-operating assets should be excluded from the determination of value.
b. Non-operating assets should generally be excluded from the calculation of the return on tangible assets
If forecasts prepared by the client seem unreliable what should the appraiser do? a. Use the forecasts; the client knows his or her business best b. Prepare a forecast independently c. Use the forecasts and add a limiting condition to the report d. Eliminate the use of this method.
b. Prepare a forecast independently
Which is NOT a cost of liquidation? a. Legal and accounting costs related to winding-down operations b. Property taxes c. Auctioneer comissions d. Administrative costs and losses that may continue during liquidation
b. Property taxes
Which statement is correct? a. The Public Stats database includes more transactions than Pratt's Stats b. Public Stats is a database representing transactions where 100 percent of the entity is sold c. Pratt Stats reports larger transactions than done deals d. Done deals contain mid-market transaction data, with all transactions involving acquisitions of publicly owned companies
b. Public Stats is a database representing transactions where 100 percent of the entity is sold
When using the merger and acquisition method under the market approach, which of the following is considered to be an error?] a. Applying an MVIC/EBIT multiple to the subject company's normalized ongoing EBIT, to calculate an invested capital value b. Eliminating any duplicate transactions c. Eliminate any transactions that are outdated d. Averaging the Price/Earnings multiple results from different sources/databases
d. Averaging the Price/Earnings multiple results from different sources/databases
In which circumstance is using a simple average of historical earnings to cash flow in the captalization of cash flow method appropriate? a. Cash flow is declining steadily b. Never use the simple average; instead a weighted average should be used c. Cash flow is increasing steadily d. Cash flow is cyclical in nature and erratic
d. Cash flow is cyclical in nature and erratic
Which analysis tool eliminates the size differentials between the subject company and its peer group for easier analysis? a. Trend analysis b. Operational analysis c. Gross profit analysis d. Common size analysis
d. Common size analysis
According to the Duff and Phelps study, what is NOT included in high financial risk? a. Companies that have negative book value b. Companies that have debt to capital greater than 80 percent c. Companies that are in bankruptcy or liquidation d. Companies that show a loss in the most recent year
d. Companies that show a loss in the most recent year Companies that have a five-year average net income of less than zero are at a high financial risk, not a single year
What type of intangible asset are necessary for sales to occur but do NOT drive sales? a. Limited life assets b. Revenue-generating intangible assets c. Goodwill d. Contributory intangible assets
d. Contributory intangible assets
When using the adjusted net asset value method, what type of account would most likely be removed from the GAAP-based balance sheet? a. Prepaid expenses b. Accounts receivable deemed to be fully collectible by management c. Deferred tax asset and liability d. Deferred revenue
d. Deferred tax assets and liabilities are required to be recorded on a GAAP-based balance sheet but usually are related to temporary differences that have no effect on the valuation of the entity on the whole. A valuator may remove these or assess the FMV of these assets or liabilities to be $0 if the entity is valued as a going concern and the timeline of benefit has very little net present value
What is the name for any set of rights or non-physical resources that provide an advantage to the owner? a. Trademark b. Goodwill c. Intellectual property d. Intangible assets
d. Intangible assets
When using the multi-period excess earnings method (MPEEM) to value intangible assets, which statement is NOT correct? a. Contributory asset charges should be charged to the intangible asset while using the MPEEM method b. The discount rate applied to cash flows to determine value generally starts with the entity WACC and is adjusted for risks of the intangible asset's assumptions c. The MPEEM method is generally used to value the primary intangible asset d. It is common to use the MPEEM method to value more than one intangible asset
d. It is common to use the MPEEM method to value more than one intangible asset
The definition of the real estate appraisal term market value is very similar to the definition of FMV. What is one difference between the two terms? a. There is no difference b. Market value indicates consideration of the ability to obtain mortgage on the real estate c. With market value, but parties do not need to be well-informed d. Market value encompasses a reasonable length of time for exposure on the open market
d. Market value encompasses a reasonable length of time for exposure on the open market. FMV assumes usually market and economic conditions as of the date of the valuation. Market value usually includes a provision such that a reasonable time is allowed for exposure in the "open market"
Which is most important when calculating a value into perpetuity in the discounted cash flow method? a. Using anticipated inflation plus population growth as the proxy for the long-term growth rate b. Using real GDP as the proxy for the long-term growth rate c. Book value of the equity as a proxy for market value d. Normalizing depreciation and capital expenditures into perpetuity
d. Normalizing depreciation and capital expenditures into perpetuity Among the most important factors in calculating a terminal year value is the normalizing of depreciation and capex. Depreciation can never exceed capital expenditures in the terminal period
The risk-free rate of return reflects which market-based factors? a. Rental rate b. Inflation c. Maturity risk Choose: All of the above, Choice B, Choice A, None of the above
All of the above
Which method is useful for valuing intangibles such as customer lists, engineering drawings, and music libraries? a. The adjusted book value method b. The guideline transaction method c. The liquidation value method d. The cost-to-recreate method
d. The cost-to-recreate method
Which is NOT a direct component of the WACC? a. Cost of capital b. Marginal income tax rate c. Growth d. Percentage of equity capital
c. Growth
If a tangible asset valuation report is provided from another appraiser that is found to have factual and assumption errors, what would be the valuator most likely do? a. Consider withdrawing from the engagement b. Accept the report at face value because the tangible asset appraiser is deemed to be an expert in their area c. Require the tangible asset appraiser to reissue their report with the issues corrected d. Take into consideration the effect of the errors on the conclusions and adjust their assumptions or calculations accordingly
d. Take into consideration the effect of the errors on the conclusions and adjust their assumptions or calculations accordingly Depending on the size of the errors and their effect on a valuation's conclusions the business appraiser could change assumptions or correct a calculation mistake in their own report without having the tangible asset appraiser change their report. It may be impractical for the other professional to make a change and reissue the report if the effect can be explained and corrected in the business valuation report
Which is not a normalizing adjustment typically made to guideline public company information? a. Adjust officers' compensation to the industry average b. Standardize accounting methods c. Remove the impact of extraordinary items d. Adjust income taxes
. Adjust officers' compensation to the industry average Adjust officers' compensation to the industry average. To make a meaningful comparison between the guideline companies and the subject company, each of the other adjustments would be made to normalize the guideline company financial statements. Adjustments are not typically made for officers' compensation because officers' compensation in a publicly traded company is usually subject to approval by the Board of Directors and/or the Company's stockholders. Thus, this is essentially a third-party review of the reasonableness of the compensation
Using the Modified CAPM with an unlevered guideline company beta of .95, calculate the subject Company's Beta where its capital structure is 60% debt to 40% equity and a 30% tax rate.
1.95. Levered Beta = .95 × {1 + (1-.3) × .6/.4}
Using the following data from Duff & Phelps Valuation Handbook, what is the equity risk premium to be used in the CAPM or Build-Up method?
6.9%. This calculation correctly determines the equity risk premium by subtracting the average 20-Year U.S. Treasury Bond income return of 5.1% from the average large company total stock return of 12% to yield 6.9%.
Which is not a normalizing adjustment typically made to guideline public company information?
Adjust officers' compensation to the industry average. To make a meaningful comparison between the guideline companies and the subject company, each of the other adjustments would be made to normalize the guideline company financial statements. Adjustments are not typically made for officers' compensation because officers' compensation in a publicly traded company is usually subject to approval by the Board of Directors and/or the Company's stockholders. Thus, this is essentially a third-party review of the reasonableness of the compensation.
If private companies are selected for use in the guideline merged and acquired company (transaction) method, the resulting value is:
Control, non-marketable. These transactions represent 100% of the outstanding stock of the company and are thus control values. Since the companies are private, they are considered non-marketable.
For tangible asset appraisals, what best describes the difference between fair market value in continued use and fair market value?
Fair market value in continued use includes freight, tax, and installation, while fair market value does not. Fair market value in continued use includes freight, tax, and installation since the assets are already in place and ready for utilization.
In deriving an equity discount rate via the build-up approach, a size premium refers to:
The incremental rate of return required to invest in the stock of a small company versus the relatively larger companies comprising the S&P 500 as determined by the capital asset pricing model.
* Which of the following risks should be considered in adjusting the valuation multiples that are determined from guideline companies? a. Business risk. b. Operating risk. c. Product risk. d. All the above.
d. All the above.
The FMV of equity (net asset value) of a company was determined to be $10M before any adjustment for built-in gain. The cost basis of the equity is $5M and the tax rate is assumed to be 40%. What would be the equity value after considering the effect of the built-in gain be? a. $8M b. $2M c. $5M d. $7M
a. $8M
A valuation professional obtained a Price/Earnings multiple from a common private company transaction database. Earnings of the subject company have been adjusted for fair market value rent expenses. The value obtained from this data is: a. A control value b. A minority value c. Neither a control or minority value d. Book value
a. A control value
What is the underlying economic rationale for the use of methods under the cost approach to measure the fair value at a specific intangible asset? a. A market participant would not pay more for an intangible asset in the open market than what it would cost to construct a similar asset of equal utility, adjusted for any obsolescence b. A market participant would consider the value indicated by the cost approach as a floor value c. A market participant would typically view the current cost to recreate as the best measure of fair value of the acquired intangible asset d. A market participant would pay more for an asset in the open market than what it would cost to construct a similar asset of equal utility, adjusted for obsolescence
a. A market participant would not pay more for an intangible asset in the open market than what it would cost to construct a similar asset of equal utility, adjusted for any obsolescence
When valuing a minority equity interest, when would the asset approach be most relevant? a. A sale of the business is anticipated b. The subject company is a retail business c. The subject company is a service business d. The subject company has significant goodwill value
a. A sale of the business is anticipated A minority interest would share in the net asset value realized upon a sale of the business
What is the term that best describes a specific set of assets created through the efforts of the mind and protected legally? a. Intellectual property b. Financial instrument c. Intangible asset d. Goodwill
a. Intellectual property
Which of the following is not an advantage of the guideline merged and acquired company (transaction) method? a. It is easy to find comparable companies that have been acquired. b. Transactions are objective, because they come from the market. c. Transactions are assumed to be between informed buyers and sellers and are a good representation of fair market value. d. Transactions involve entire companies that have changed hands making it a logical application of the market approach.
a. It is easy to find comparable companies that have been acquired.
When using the DCF model to value a company that is expected to experience growth in revenues and income, what is it important to do? a. Match the revenues and earnings growth with the capital needed to fuel that growth b. Use only book depreciation to calculate cash flow because it is based on more realistic economic lives than depreciation based on tax depreciation c. Subtract growth from the discount rate each year before discounting interim cash flows d. Forecast five years of cash flows with the sixth year being the terminal year
a. Match the revenues and earnings growth with the capital needed to fuel that growth
A company's net income will most likely approximate its cash flow during: a. Mature operations and stable earnings b. Cyclical downturn in earnings c. Periods of rapid growth in sales d. When the straight-line depreciation method is used
a. Mature operations and stable earnings Because stable earnings do not require significant investment into operations to fund future growth
Which is NOT an advantage of the income approach? a. Minimal judgment is needed in choosing an appropriate capitalization or discount rate. b. Financial market analysts frequently use the income approach in their decision-making process c. It values an enterprise based on its earnings or cash-flow generating abilities d. It requires a well-researched mathematical application that can, at times be performed more quickly relative to other approaches.
a. Minimal judgment is needed in choosing an appropriate capitalization or discount rate.
What is the derivation of a separate company-specific risk adjustment when applying the Modified CAPM method to arrive at a discount rate? a. Predicated on the conclusion that the subject company's risk characteristics are greater or less than the typical companies from which the equity risk and size premiums were drawn b. Typically not necessary as the use of beta theoretically accounts for all systematic risk c. Not reasonably possible if its primary bases are the valuation analyst's experience and informed judgment d. Of questionable validity unless corroborated by one of the generally accepted models for empirically quantifying company-specific risk
a. Predicated on the conclusion that the subject company's risk characteristics are greater or less than the typical companies from which the equity risk and size premiums were drawn
Which statement is correct? a. As the discount rate decreases, the entity value decreases b. As the discount rate increases, the entity value increases c. As the growth rate increases, the cap rate increases d. As the discount rate increases, the entity value decreases
d. As the discount rate increases, the entity value decreases
Which is NOT correct regarding reasonability checking the company-specific risk premium? a. Regardless of whether the appraiser is using the CAPM or the BU method, the specific company risk premium applied to each by the appraiser will always be the same b. A private company can have either a positive or negative CSRP c. No objective source of data has been accumulated to empirically quantify the CSRP d. The use of multiple valuation approaches and methods, and reconciling any differencing value indications, is one method to reasonably check the CSRP
a. Regardless of whether the appraiser is using the CAPM or the BU method, the specific company risk premium applied to each by the appraiser will always be the same
Which is NOT correct regarding SBBI's segmentation of the 10th decile equity size premiums into decile 10a and 10b? a. Subset 10a has reflected size premiums more than double the subset 10b size premiums since Ibbotson segregated decile 10 b. The public companies populating the 10th decile were segregated, by total market capitalization, with the larger companies being placed in 10a and the smaller companies being placed in 10b c. By breaking down the deciles into yet smaller subsets, the chances are greater that a small number of stocks could dominate returns in the earlier years, thereby skewing the indicated results d. Appraisers have expressed concerns about placing reliance on the 10th decile overall, and especially subset 10b due to a delisting bias found in the lower segment of the public markets
a. Subset 10a has reflected size premiums more than double the subset 10b size premiums since Ibbotson segregated decile 10
Which best describes the economic remaining life of an intangible asset? a. The period during which the intangible asset generates positive cash flow b. The contractual term involving the intangible asset c. A statistical analysis of turnover trends d. Limited by expected changes in technology
a. The period during which the intangible asset generates positive cash flow
Which appraisal principal states, in essence, that nobody will pay more for something he or she would pay for an equally desirable substitute? a. The principle of substitution b. The principle of alternatives c. The principle of future benefits d. The principle of supply and demand
a. The principle of substitution
Which is NOT correct when determining an expected WACC for cash flows? a. The use of a WACC is appropriate only when valuing controlling interests in private companies b. Mathematically speaking, as long as the cost of debt is lower than the cost of equity, the more debt that is assumed to be used in a WACC, the lower the WACC c. Errors in LT growth assumptions usually have a more pronounced effect on value when subtracted from WACC to yield a WACC cap rate than when subtracted from the required rate of return on equity to yield an equity cap rate d. Economically speaking, beyond certain levels of assumed debt the risk of default on that debt causes the cost of equity to rise, such that the WACC actually starts to get higher even through more lower-cost capital is being employed
a. The use of a WACC is appropriate only when valuing controlling interests in private companies
When selecting and using the work product of a tangible asset appraiser, the valuation analyst should NOT a. Consider valuation approaches and their variations b. Accept the appraiser's report without understanding it, but assign responsibilities with limiting conditions c. Have an understanding of the Uniform Standards of Professional Appraisal Practice d. Consider differences between various types of value definitions
b. Accept the appraiser's report without understanding it, but assign responsibilities with limiting conditions According to VS 100, valuation analysts are not required to have the qualifications of tangible asset appraisers; however, they cannot blindly rely on obviously faulty or irrelevant reports even with limiting conditions
Generally accepted methods used to derive the cost of capital include a. CAPM b. CAPM and BU c. BU d. None of the above
b. CAPM and BU
ABC Company has net operating losses that are expected to be used at the end of five years. Which should NOT be done when using the income approach? a. Use a discounted cash flow method b. Capitalize pre-tax cash flows using a post-tax capitalization rate c. Capitalize after-tax cash flow before NOL and add back the present value of the NOL tax benefit separately d. ANalyze any restrictions on the use of NOLs
b. Capitalize pre-tax cash flows using a post-tax capitalization rate
If private companies are selected for use in the guideline merged and acquired company (transaction) method, the resulting value is: a. Control, marketable. b. Control, non-marketable. c. Minority, marketable. d. Minority, non-marketable.
b. Control, non-marketable.
Based on this data, which of the two denominators indicate a stronger relationship with MVIC? Based on a set of selected guideline transaction multiples, a valuation professional has calculated an MVIC/EBIT multiple of 2.7 and an MVIC/Revenue multiple of 0.38. The R-Squared for the MVIC/EBIT multiple was 0.70 and the R-Squared for the MVIC/Revenue was 0.52. a. Revenue b. EBIT c. There is not enough data to determine which denominator has the stronger relationship. d. R-Squared is not a good indicator of the strength of relationship between MVIC and the denominators.
b. EBIT
The use of beta obtained from a relevant guideline public company sample within the modified CAPM typically precludes the need for separate consideration of which risk factor? a. Historical volatility in subject company sales and profits b. General industry risk c. Customer diversification d. Size differences
b. General industry risk
What should be the weights applied to debt and equity in calculating the WACC under fair market value? a. The company's accounting book values of debt and equity b. Market values of debt and equity, regardless of whether a minority or controlling interest is being appraised c. The subject company's current capital structure when valuing a controlling interest in the company d. The optimal capital structure when valuing a minority interest in the company
b. Market values of debt and equity, regardless of whether a minority or controlling interest is being appraised It is important that the appraiser understand that the development of WACC necessitates using debt and equity at market values, regardless of control or minority, but the selected proportions of debt and equity will differ depending upon whether control or minority is being appraised
Which of the following statements is not true regarding the ownership of shares in closed-end investment funds that trade on established securities exchanges? a. Ownership shares represent non-controlling, marketable ownership interests. b. Shares always trade at a discount from their net asset values. c. Generally, discounts reflect the fact that a minority stockholder cannot directly realize his/her pro rata share of the underlying market values of the fund's net assets. d. Discounts may also reflect the additional risk inherent in a portfolio of investments concentrated within one industry or industry segment (lack of diversification risk).
b. Shares always trade at a discount from their net asset values. Occasionally such shares trade at a premium to their net asset value. Like other publicly traded securities, shares in closed-end funds trade are subject to the laws of supply and demand. Sometimes, a fund may be invested in an industry or market segment that temporarily becomes very desirable, thereby driving up share prices.
Management forecasts include significant growth. Which physical facilities factor is most important to consider in regard to these forecasts? a. The location of the plant b. The current capacity of the plant c. Whether the plant is owned or rented d. The plant's size
b. The current capacity of the plant
What is the advantage of Pratt's Stats over both BizComps and IBA? a. The database contains only asset sales b. The database contains more data points for each transaction c. The database contains more transactions d. The database contains smaller transactions
b. The database contains more data points for each transaction Pratt's Stats contains up to 149 data points per transaction, which is significantly more than either the iBA market database or BizComps
What is a distinctive name, symbol, sound, color, motto, or emblem that identifies a product or firm from others? a. Patent b. Trademark c. Copyright d. Trade secret
b. Trademark
Which investment requires the highest rate of return? a. Treasury bills b. Venture capital c. Junk bonds d. Small cap stocks
b. Venture capital This is considered the riskiest investment
Which describes the difference between a finite-lived intangible asset and an indefinite-lived intangible asset? a. A finite-lived asset has expected future cash flows but an indefinite-lived asset has unknown cash flow expectations b. A finite-lived asset's remaining useful life has already been fully amortized but an indefinite-lived asset has not been fully amortized c. A finite-lived asset's useful life can be reasonably estimated but an indefinite-lived asset's useful life is undeterminable d. An indefinite-lived asset's useful life can be reasonably estimated but a finite-lived asset's useful life is undeterminable
c. A finite-lived asset's useful life can be reasonably estimated but an indefinite-lived asset's useful life is undeterminable
Which method is commonly used in ascertaining depreciation the valuation of tangible assets (for example, machinery and equipment)? a. Cost index analysis b. Difference between historical cost and fair value in continued use c. Age-life analysis d. Difference between reproduction cost new and market value
c. Age-life analysis
Which source is an annual yearbook that contains historical data about returns in the capital markets since 1926 through the current year? a. Industry Cost of Capital b. Standard and Poor's Industry Surveys c. Duff and Phelps Valuation Handbook d. Statistical Abstract of the United States
c. Duff and Phelps Valuation Handbook
It is often appropriate to use a straight average of historical earnings or cash flow in the capitalization of cash flow method under which scenario? a. Declining cash flow b. Increasing cash flow c. Erratic (up and down) or unpredictable cash flow d. The straight average should never be used, but instead a weighted average should be used.
c. Erratic (up and down) or unpredictable cash flow
When comparing rates of return using a capitalized excess earnings method, which statement is correct? a. Generally, rates quoted in Revenue Ruling 68-609 are recommended b. The same rate should be applied to tangible and intangible assets c. Generally, a higher rate of return is applied to intangible assets than tangible d. Generally, a higher rate of return is applied to tangible assets than intangible.
c. Generally, a higher rate of return is applied to intangible assets than tangible Rates of return should match the risk associated with the asset. Generally, intangible assets would have a greater risk than tangible assets.
What is the difference between a discount rate and a cap rate? a. Equity risk premium b. Specific company risk premium c. Growth d. Inflation
c. Growth A cap rate is equal to a discount rate less growth
How are royalty rates usually stated? a. Percentage of the remaining useful life b. Discount rate c. Percentage of revenue d. Capitalization rate
c. Percentage of revenue
Which is the preferred method to incorporate additional risk reflected in the execution of the long-term business plan? a. Do nothing b. Add an additional company-specific risk premium c. Reflect the risk factors in the prospective financial data d. Adjust your beta
c. Reflect the risk factors in the prospective financial data
In which case is the price to earnings multiple most appropriate? a. When the company has abnormal tax rates b. When the company has an unusual capital structure c. When depreciation represents actual or economic physical wear and tear d. When the company has low levels of income compared to its depreciation and amortization
c. When depreciation represents actual or economic physical wear and tear Depreciation representing actual or economic physical wear and tear would justify a price-to-earnings multiple. A price to earnings multiple would also be used when the company has an average capital structure
ABC Sales Co. needs to determine the FMV of an employment and non-competition agreement. It estimates that its revenue will be $10M with after tax income of $1M with an agreement in place. The company also anticipates that revenue will be $7.5M and after-tax income will be $750K without an agreement in place. What is the most relevant amount to consider in determining the value of a non-competition element of the agreement? a. $1M b. $2.5M c. $750K d. $250K
d. $250K The answer is calculated as after-tax income with an agreement in place less after-tax income with no agreement in place. Therefore, the answer $1M - $750K = $250K
In applying a beta in a CAPM model, which beta should be used? a. An unleveraged beta b. None of the above c. The betas of the selected guideline public companies d. A re-leveraged beta
d. A re-leveraged beta
When may leasehold improvements have a FMV greater than book value? a. The expected life of the improvements is less than the term of the lease, and the probability of renewing the lease is high b. The expected life of the improvements is equal to the term of the lease, and the probability of renewing the lease is low c. The expected life of the improvements is equal to the term of the lease, and the lessee is planning to buy the subject building d. The expected life of the improvements is greater than the term of the lease, and the probability of renewing the lease is high
d. The expected life of the improvements is greater than the term of the lease, and the probability of renewing the lease is high
