CERTIFIED VALUATION ANALYST
EXAMINATION QUESTIONS AND
CORRECT ANSWERS (VERIFIED
ANSWERS) PLUS RATIONALES 2026 Q&A
| INSTANT DOWNLOAD PDF
1. What is the primary purpose of business valuation?
A) To calculate employee salaries
B) To determine the economic worth of a business or asset
C) To prepare tax returns
D) To record accounting entries
Answer: B
Rationale: Business valuation focuses on estimating the economic value of
a company or its assets. This is used in transactions, litigation, taxation,
and strategic decision-making. It goes beyond accounting records and
reflects market-based or income-based expectations of value rather than
bookkeeping purposes.
2. Which valuation method is based primarily on expected future cash flows?
A) Asset-based approach
B) Market approach
C) Income approach
D) Cost approach
Answer: C
Rationale: The income approach values a business based on its ability to
generate future economic benefits, typically using discounted cash flow
(DCF) analysis. It converts expected future cash flows into present value
using a discount rate reflecting risk.
,3. What does WACC stand for in valuation?
A) Weighted Average Cost of Capital
B) Working Asset Cash Calculation
C) Weighted Annual Capital Cost
D) World Accounting Cost Control
Answer: A
Rationale: WACC represents the average rate of return a company must
pay to its capital providers (debt and equity). It is used as a discount rate
in valuation models to reflect overall investment risk.
4. Which of the following is NOT part of the market approach?
A) Guideline public company method
B) Precedent transaction method
C) Discounted cash flow method
D) Comparable company analysis
Answer: C
Rationale: The discounted cash flow method belongs to the income
approach, not the market approach. Market approaches rely on
comparable data from other companies or transactions.
5. Enterprise value equals:
A) Equity value + Cash only
B) Equity value + Debt − Cash
C) Assets − Liabilities
D) Revenue − Expenses
Answer: B
Rationale: Enterprise value represents total firm value to all capital
providers. It includes equity and debt while subtracting cash because cash
reduces net acquisition cost.
6. Which discount rate is commonly used in equity valuation?
A) Cost of debt
B) Risk-free rate only
C) Cost of equity
, D) Inflation rate
Answer: C
Rationale: The cost of equity reflects required return by shareholders and
is used when valuing equity cash flows rather than total enterprise cash
flows.
7. What is the terminal value in DCF analysis?
A) Initial investment value
B) Value of assets sold
C) Value beyond forecast period
D) Annual depreciation
Answer: C
Rationale: Terminal value captures the value of a business beyond the
explicit forecast period, assuming either perpetual growth or exit multiple
methods. It often represents a large portion of total valuation.
8. Which method uses EBITDA multiples most commonly?
A) Cost approach
B) Market approach
C) Liquidation approach
D) Replacement approach
Answer: B
Rationale: Market approach uses valuation multiples like EBITDA,
revenue, or earnings derived from comparable companies or transactions.
9. What does a higher discount rate imply?
A) Lower risk
B) Higher present value
C) Higher risk
D) No change in value
Answer: C
Rationale: A higher discount rate reflects greater risk and uncertainty,
which reduces the present value of future cash flows.
EXAMINATION QUESTIONS AND
CORRECT ANSWERS (VERIFIED
ANSWERS) PLUS RATIONALES 2026 Q&A
| INSTANT DOWNLOAD PDF
1. What is the primary purpose of business valuation?
A) To calculate employee salaries
B) To determine the economic worth of a business or asset
C) To prepare tax returns
D) To record accounting entries
Answer: B
Rationale: Business valuation focuses on estimating the economic value of
a company or its assets. This is used in transactions, litigation, taxation,
and strategic decision-making. It goes beyond accounting records and
reflects market-based or income-based expectations of value rather than
bookkeeping purposes.
2. Which valuation method is based primarily on expected future cash flows?
A) Asset-based approach
B) Market approach
C) Income approach
D) Cost approach
Answer: C
Rationale: The income approach values a business based on its ability to
generate future economic benefits, typically using discounted cash flow
(DCF) analysis. It converts expected future cash flows into present value
using a discount rate reflecting risk.
,3. What does WACC stand for in valuation?
A) Weighted Average Cost of Capital
B) Working Asset Cash Calculation
C) Weighted Annual Capital Cost
D) World Accounting Cost Control
Answer: A
Rationale: WACC represents the average rate of return a company must
pay to its capital providers (debt and equity). It is used as a discount rate
in valuation models to reflect overall investment risk.
4. Which of the following is NOT part of the market approach?
A) Guideline public company method
B) Precedent transaction method
C) Discounted cash flow method
D) Comparable company analysis
Answer: C
Rationale: The discounted cash flow method belongs to the income
approach, not the market approach. Market approaches rely on
comparable data from other companies or transactions.
5. Enterprise value equals:
A) Equity value + Cash only
B) Equity value + Debt − Cash
C) Assets − Liabilities
D) Revenue − Expenses
Answer: B
Rationale: Enterprise value represents total firm value to all capital
providers. It includes equity and debt while subtracting cash because cash
reduces net acquisition cost.
6. Which discount rate is commonly used in equity valuation?
A) Cost of debt
B) Risk-free rate only
C) Cost of equity
, D) Inflation rate
Answer: C
Rationale: The cost of equity reflects required return by shareholders and
is used when valuing equity cash flows rather than total enterprise cash
flows.
7. What is the terminal value in DCF analysis?
A) Initial investment value
B) Value of assets sold
C) Value beyond forecast period
D) Annual depreciation
Answer: C
Rationale: Terminal value captures the value of a business beyond the
explicit forecast period, assuming either perpetual growth or exit multiple
methods. It often represents a large portion of total valuation.
8. Which method uses EBITDA multiples most commonly?
A) Cost approach
B) Market approach
C) Liquidation approach
D) Replacement approach
Answer: B
Rationale: Market approach uses valuation multiples like EBITDA,
revenue, or earnings derived from comparable companies or transactions.
9. What does a higher discount rate imply?
A) Lower risk
B) Higher present value
C) Higher risk
D) No change in value
Answer: C
Rationale: A higher discount rate reflects greater risk and uncertainty,
which reduces the present value of future cash flows.
