NACVA CVA Exam Questions and Answers Latest Update 2025-2026
59-60 - Answers *Closely held stock
Fair market standard
Technical term
Does not apply to mergers/acquisitions
Does apply to state/gift tax valuation
Arm-34 - Answers Intangible value
Introduced good will
Good will - Answers Exists if excess earnings
Determined by capitalizing excess earnings
RR 66-49 - Answers Required properly prepared appraisals by qualified individuals
68-609 - Answers Risk associated with cash is less than inventory
Risk with inventory is less than intangible assets
77-289 - Answers Determining discounts for lack of marketability
81-253 - Answers Superseded by RR 93-12
83-120 - Answers Valuing preferred stock
93-12 - Answers "A minority discount will not be disallowed solely because a transferred interest, when
aggregated with interests held by the family members, would be a part of a controlling interest."
Re. Procedure 98-34 - Answers Compensatory stock options
IRC 2703 - Answers Estate, gift, tax and other tax purposes
Dept. of Labor (DOL) - Answers ESOPs
3 standards of value - Answers Strategic, fair market, everything else
Tax valuations (Fair market) - Answers Estate tax, gift tax, ESOPs, Allocation of lump sum purchase price,
charitable contributions, calculation of built-in gain for s corp election
Non-tax valuation (3rd standard "all other") - Answers Purchase, sale, merger, buy/sell agreement,
litigation...
Valuator - Answers Objective
,Advocate - Answers Persuasion, making an argument on opinion
IRC 6662 - Answers Competency
Investment value principle - Answers value = benefit stream (income)/required rate or return (risk)
Methods to project economic earnings - Answers 1. Trend-Line Static Method: (lessens the impact which
any particular year has on the calculation, assumes a capitalization process of earnings rather than a
discounting process)
2. Projected Growth Rate in Earnings Method (data is increasing at a constant rate)
3. Geometric (data is increasing at an increasing rate)
4. Trend-line Projected Method (data is increasing at a declining rate)
5. Logarithmic (data is increasing but at an increasingly declining rate)
6. The Gompertz Curve (slow growth followed by rapid growth followed by slowing of growth and then a
declining growth rate)
7. Internal Growth (return on equity times (1-p) where p refers to the proportion of earnings paid out in
the form of dividends)
Observations of Ibbotson - Answers 1.Long-term historical returns have shown surprising stability.
2. Short-term observations may lead to illogical forecasts.
3. Focusing on the recent past ignores dramatic historical events and their impact on market returns. We
don't know what major events lie ahead.
4. Law of large numbers: more observations lead to a more accurate estimate.
Ibbotson formula - Answers Ke = Rf + ERP + IRPi + SP + SCR
Gordon Growth Model - Answers Assumes that cash flows will grow at a uniform rate in perpetuity
Calculating Gordon Growth Model - Answers Present value = CFo (l + g)/ k - g
CFo - Answers Cash flow in period o (the period immediately preceding the valuation date.)
k - Answers Discount rate (or cost of capital)
g - Answers Expected long-term sustainable growth rate of the cash flow used (remember, in the
context of valuation of closely held companies, valuation analysts will generally use either Net Cash Flow
to Equity or Net Cash Flow to Invested Capital)
3 sources of comparable company transaction data - Answers • Public company transactions
,• Private company transactions
• Prior transactions of the subject company
Data Sources - Private Companies Transactions - Answers a) Institute of Business Appraisers (IBA)
b) BIZCOMPS®
c) Pratt's Stats™
d) Done Deals™
e) Mid Market Comps™ (ValueSource)
f) Mergerstat®
Data Sources - Public Companies Transactions - Answers a) Alacra
b) Compustat
c) Disclosure
d) Reuters
e) Mergent Company Data Direct
f) OneSource
g) Fetch XL
yield rate is comprised of two main elements: - Answers 1. Safe /reasonable rate of return on secure
investments (valuation analysts sometimes match the safe rate to the holding period of the investment).
2. An additional return (premium) that compensates the investor for the relative degree of risk, in excess
of the safe rate, inherent in the investment.
3 future benefit assumptions: - Answers 1. The future benefit stream is linear and there is no growth.
2. The future benefit stream is linear but growing at a constant rate.
3. The future benefit stream reflects nonlinear growth.
Factors that may increase the discount for lack of marketability: - Answers a) Restrictions on transfers
b) Little or no dividends or partnership payout
c) Little or no prospect of either public offering or sale of company; especially if so stated in corporate
minutes or other documentation
d) Limited access to financial information
, Factors that may decrease the discount for lack of marketability: - Answers a) "Put" option
b) Limited market available that may be interested in purchasing shares (e.g., ESOP)
c) Imminent public offering or sale of company
d) High dividend or partnership payouts
May increase or decrease discount for lack of marketability: - Answers a) Size of block - depending on
size and circumstances b) Buy-sell agreement - depending on provisions
Lack of marketability - Answers absence of a ready or existing market for the sale or purchase of the
securities being valued
Restricted stock (also known as letter stock) - Answers Stock of a publicly traded company that is
restricted from trading for a specific period of time.
Identical to the publicly traded stock except that it is not freely traded.
Cannot be sold in the public markets.
Can be sold in private transactions.
These transactions usually must be reported to the Securities and Exchange Commission (SEC) and
therefore become public record, allowing a comparison be done of the price of the restricted stock to
the publicly traded stock
Restricted Stock Studies - Answers a) SEC Institutional Investor Study (1971)
b) Gelman Study (1972)
c) Moroney Study (1973)
d) Maher Study (1976)
e) Trout Study (1977)
f) Willamette Management Assoc. Study (1981-1984)
g) Stryker/Pittock Study (1983)
h) Silber Study (1991)
i) Hall & Polacek Study (1994)
j) Johnson Study (1999)
k) Columbia Financial Advisors, Inc. Studies (2000)
59-60 - Answers *Closely held stock
Fair market standard
Technical term
Does not apply to mergers/acquisitions
Does apply to state/gift tax valuation
Arm-34 - Answers Intangible value
Introduced good will
Good will - Answers Exists if excess earnings
Determined by capitalizing excess earnings
RR 66-49 - Answers Required properly prepared appraisals by qualified individuals
68-609 - Answers Risk associated with cash is less than inventory
Risk with inventory is less than intangible assets
77-289 - Answers Determining discounts for lack of marketability
81-253 - Answers Superseded by RR 93-12
83-120 - Answers Valuing preferred stock
93-12 - Answers "A minority discount will not be disallowed solely because a transferred interest, when
aggregated with interests held by the family members, would be a part of a controlling interest."
Re. Procedure 98-34 - Answers Compensatory stock options
IRC 2703 - Answers Estate, gift, tax and other tax purposes
Dept. of Labor (DOL) - Answers ESOPs
3 standards of value - Answers Strategic, fair market, everything else
Tax valuations (Fair market) - Answers Estate tax, gift tax, ESOPs, Allocation of lump sum purchase price,
charitable contributions, calculation of built-in gain for s corp election
Non-tax valuation (3rd standard "all other") - Answers Purchase, sale, merger, buy/sell agreement,
litigation...
Valuator - Answers Objective
,Advocate - Answers Persuasion, making an argument on opinion
IRC 6662 - Answers Competency
Investment value principle - Answers value = benefit stream (income)/required rate or return (risk)
Methods to project economic earnings - Answers 1. Trend-Line Static Method: (lessens the impact which
any particular year has on the calculation, assumes a capitalization process of earnings rather than a
discounting process)
2. Projected Growth Rate in Earnings Method (data is increasing at a constant rate)
3. Geometric (data is increasing at an increasing rate)
4. Trend-line Projected Method (data is increasing at a declining rate)
5. Logarithmic (data is increasing but at an increasingly declining rate)
6. The Gompertz Curve (slow growth followed by rapid growth followed by slowing of growth and then a
declining growth rate)
7. Internal Growth (return on equity times (1-p) where p refers to the proportion of earnings paid out in
the form of dividends)
Observations of Ibbotson - Answers 1.Long-term historical returns have shown surprising stability.
2. Short-term observations may lead to illogical forecasts.
3. Focusing on the recent past ignores dramatic historical events and their impact on market returns. We
don't know what major events lie ahead.
4. Law of large numbers: more observations lead to a more accurate estimate.
Ibbotson formula - Answers Ke = Rf + ERP + IRPi + SP + SCR
Gordon Growth Model - Answers Assumes that cash flows will grow at a uniform rate in perpetuity
Calculating Gordon Growth Model - Answers Present value = CFo (l + g)/ k - g
CFo - Answers Cash flow in period o (the period immediately preceding the valuation date.)
k - Answers Discount rate (or cost of capital)
g - Answers Expected long-term sustainable growth rate of the cash flow used (remember, in the
context of valuation of closely held companies, valuation analysts will generally use either Net Cash Flow
to Equity or Net Cash Flow to Invested Capital)
3 sources of comparable company transaction data - Answers • Public company transactions
,• Private company transactions
• Prior transactions of the subject company
Data Sources - Private Companies Transactions - Answers a) Institute of Business Appraisers (IBA)
b) BIZCOMPS®
c) Pratt's Stats™
d) Done Deals™
e) Mid Market Comps™ (ValueSource)
f) Mergerstat®
Data Sources - Public Companies Transactions - Answers a) Alacra
b) Compustat
c) Disclosure
d) Reuters
e) Mergent Company Data Direct
f) OneSource
g) Fetch XL
yield rate is comprised of two main elements: - Answers 1. Safe /reasonable rate of return on secure
investments (valuation analysts sometimes match the safe rate to the holding period of the investment).
2. An additional return (premium) that compensates the investor for the relative degree of risk, in excess
of the safe rate, inherent in the investment.
3 future benefit assumptions: - Answers 1. The future benefit stream is linear and there is no growth.
2. The future benefit stream is linear but growing at a constant rate.
3. The future benefit stream reflects nonlinear growth.
Factors that may increase the discount for lack of marketability: - Answers a) Restrictions on transfers
b) Little or no dividends or partnership payout
c) Little or no prospect of either public offering or sale of company; especially if so stated in corporate
minutes or other documentation
d) Limited access to financial information
, Factors that may decrease the discount for lack of marketability: - Answers a) "Put" option
b) Limited market available that may be interested in purchasing shares (e.g., ESOP)
c) Imminent public offering or sale of company
d) High dividend or partnership payouts
May increase or decrease discount for lack of marketability: - Answers a) Size of block - depending on
size and circumstances b) Buy-sell agreement - depending on provisions
Lack of marketability - Answers absence of a ready or existing market for the sale or purchase of the
securities being valued
Restricted stock (also known as letter stock) - Answers Stock of a publicly traded company that is
restricted from trading for a specific period of time.
Identical to the publicly traded stock except that it is not freely traded.
Cannot be sold in the public markets.
Can be sold in private transactions.
These transactions usually must be reported to the Securities and Exchange Commission (SEC) and
therefore become public record, allowing a comparison be done of the price of the restricted stock to
the publicly traded stock
Restricted Stock Studies - Answers a) SEC Institutional Investor Study (1971)
b) Gelman Study (1972)
c) Moroney Study (1973)
d) Maher Study (1976)
e) Trout Study (1977)
f) Willamette Management Assoc. Study (1981-1984)
g) Stryker/Pittock Study (1983)
h) Silber Study (1991)
i) Hall & Polacek Study (1994)
j) Johnson Study (1999)
k) Columbia Financial Advisors, Inc. Studies (2000)
