Certified Valuation Analyst CVA Economic and Industry Analysis 2

Question 1

Under the income approach, which economic indicator most directly informs the long-term growth rate assumed in a Gordon Growth terminal value?

Accepted Answer

Expected long-run nominal GDP growth

Answer

A sustainable terminal growth rate is typically anchored to expected long-run nominal GDP growth, since no firm can outgrow the economy indefinitely.

Question 2

A rising 10-year Treasury yield, all else equal, has what effect on a business's value under a DCF model?

Accepted Answer

Lowers value by raising the discount rate

Answer

Higher risk-free rates increase the discount rate, reducing the present value of future cash flows.

Question 3

Which Porter's Five Forces element is most heightened when an industry has low switching costs and many comparable substitutes?

Accepted Answer

Threat of substitutes

Answer

Low switching costs and abundant comparable products directly raise the threat of substitutes.

Question 4

When analyzing a cyclical industry, why should an analyst normalize earnings over a full business cycle?

Accepted Answer

To avoid over- or under-valuing based on a peak or trough year

Answer

Normalizing over a cycle prevents distortion from using an unrepresentative peak or trough year.

Question 5

Which source is generally considered the most authoritative for macroeconomic outlook data in a U.S. valuation report?

Accepted Answer

Federal Reserve and Congressional Budget Office forecasts

Answer

Federal Reserve and CBO publications are recognized authoritative sources for U.S. macroeconomic forecasts.

Certified Valuation Analyst Practice Test