Well, I got caught by the collation thing as well. When I looked at the expression and the values to test, I did go review an ASCII chart before answering. A capital V has a decimal value of 86 while a lower case v has a decimal value of 118. The IF statement is checking to see if 'Value1' is less than ALL of the values returned from the subquery (those values being value1, value2, value3, value4).
'Value1' is obviously less than the last three which left the first one to question. If the database is NOT CaSe sensitive, the result would be 0 since 'Value1' is = to 'value1'.
If the database IS CaSe sensitive, the result would be 1 since 'Value1' is < 'value1'. I answered as if the database were CaSe sensitive and therefore got the answer wrong. There have been CaSe questions before so really, both answers are correct since the collation was not specified as part of the question.
Not a bad question but this small piece of information was left out so it could not be answered correctly.