Certified Valuation Analyst CVA Valuation Approaches and Methodologies 5

Question 1

A discount for lack of marketability (DLOM) is applied to reflect:

Accepted Answer

The difficulty of quickly selling an interest in a closely held company

Answer

A DLOM accounts for the reduced liquidity of interests in private companies that cannot be readily sold.

Question 2

A discount for lack of control (minority discount) is appropriate when valuing:

Accepted Answer

A non-controlling ownership interest

Answer

Minority interests lack the ability to direct company decisions, warranting a discount for lack of control.

Question 3

When two or more valuation approaches yield different indications of value, the analyst should:

Accepted Answer

Reconcile and weight the results based on reliability and relevance

Answer

Sound practice requires reconciling indications by weighting each based on data quality and applicability to the subject.

Question 4

The standard of value known as 'fair market value' assumes:

Accepted Answer

A hypothetical willing buyer and willing seller, neither compelled to act

Answer

Fair market value presumes a hypothetical willing buyer and seller, both informed and under no compulsion.

Question 5

Which premise of value assumes the business will continue operating into the future?

Accepted Answer

Going concern

Answer

The going-concern premise assumes the enterprise continues as an operating business rather than being liquidated.

Certified Valuation Analyst Practice Test