CVA Valuation Approaches and Methodologies

Question 1

Which of the following is a key characteristic of the Income Approach in business valuation?

Accepted Answer

Calculates present value of expected cash flows

Answer

The Income Approach determines value based on the present value of future economic benefits, such as cash flows or earnings.

Question 2

What is the Market Approach in valuation primarily based on?

Accepted Answer

Market comparables

Answer

The Market Approach compares the subject company to similar businesses that have been sold or publicly traded.

Question 3

Which method under the Asset-Based Approach adjusts individual assets and liabilities to fair market value?

Accepted Answer

Adjusted net asset method

Answer

The Adjusted Net Asset Method revalues each asset and liability to its current market value to determine equity value.

Question 4

Which valuation approach is most suitable for asset-heavy companies like manufacturers?

Accepted Answer

Asset-Based Approach

Answer

The Asset-Based Approach is often used for companies with significant tangible assets, such as manufacturers and real estate firms.

Question 5

Which technique is commonly used under the Income Approach?

Accepted Answer

Discounted Cash Flow (DCF)

Answer

Discounted Cash Flow (DCF) analysis calculates the present value of future cash flows, a standard method in the Income Approach.

Certified Valuation Analyst Practice Test