Certified Valuation Analyst CVA Discounts, Premiums, and Adjustments 2

Question 1

In the levels-of-value framework, which level sits at the top (highest value)?

Accepted Answer

Controlling interest value

Answer

The controlling interest level is at the top of the levels-of-value hierarchy because a controlling owner can direct all business decisions, command the highest price.

Question 2

Which of the following factors would most likely INCREASE the appropriate DLOM for a given interest?

Accepted Answer

The shareholder agreement prohibits the transfer of shares for 10 years

Answer

A long lock-up or transfer restriction significantly reduces the ability to sell the interest, increasing the appropriate DLOM.

Question 3

Pre-IPO studies are used to estimate DLOM by comparing:

Accepted Answer

Transaction prices of private company shares before an IPO versus the IPO offering price

Answer

Pre-IPO studies examine private placement prices relative to subsequent IPO prices to quantify the discount associated with the lack of a public market.

Question 4

A key-person discount is most appropriately applied when:

Accepted Answer

A specific individual's skills, relationships, or reputation are critical to the company's success

Answer

A key-person discount recognizes the increased risk and potential value loss if a critical individual—upon whom the business heavily depends—were to leave.

Question 5

The Quantitative Marketability Discount Model (QMDM) developed by Mercer primarily considers which variables?

Accepted Answer

Expected holding period, interim distributions, required rate of return, and expected growth

Answer

The QMDM is a discounted cash flow model at the shareholder level that incorporates holding period, expected dividends or distributions, required return, and expected value growth.

Certified Valuation Analyst Practice Test

Certified Valuation Analyst Practice Test

Certified Valuation Analyst CVA Discounts, Premiums, and Adjustments 2