Certified Valuation Analyst Business Valuation Concepts 3

Question 1

The three generally accepted approaches to business valuation are the income, market, and:

Accepted Answer

Asset (cost) approach

Answer

The asset-based (cost) approach completes the trio of income, market, and asset approaches.

Question 2

Capitalization of earnings is most appropriate when a company's future benefit stream is expected to:

Accepted Answer

Grow at a stable, constant rate

Answer

A single-period capitalization assumes a stable, constant growth rate in the benefit stream.

Question 3

In the capitalization formula, the capitalization rate equals the discount rate minus the:

Accepted Answer

Long-term growth rate

Answer

Cap rate = discount rate − long-term sustainable growth rate.

Question 4

A discounted cash flow (DCF) model is preferred over single-period capitalization when:

Accepted Answer

Cash flows are expected to vary over a projection period

Answer

DCF (multi-period) handles uneven, changing cash flows before a terminal value is applied.

Question 5

In the guideline public company method, valuation multiples are derived from:

Accepted Answer

Publicly traded comparable companies

Answer

The guideline public company method draws pricing multiples from comparable publicly traded firms.

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