Certified Valuation Analyst (CVA) Exam 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 400

What is the after-tax capitalization rate given the price earnings ratios of 5.2, 4.6, 3.4, and 4.86?

20.15%

22.15%

To determine the after-tax capitalization rate using the provided price-earnings (P/E) ratios, it is essential to recognize that the capitalization rate (Cap Rate) is generally calculated as the inverse of the P/E ratio. The formula for calculating the capitalization rate is:

\[ \text{Capitalization Rate} = \frac{1}{\text{Price-Earnings Ratio}} \]

When you have multiple P/E ratios, you first calculate each rate and then derive an average, which is typically the preferred method in valuation practices.

For each P/E ratio:

1. For a P/E ratio of 5.2, the Cap Rate is approximately \( \frac{1}{5.2} \approx 19.23\% \).

2. For a P/E ratio of 4.6, the Cap Rate is approximately \( \frac{1}{4.6} \approx 21.74\% \).

3. For a P/E ratio of 3.4, the Cap Rate is approximately \( \frac{1}{3.4} \approx 29.41\% \).

4. For a P/E ratio of 4.86, the Cap Rate is approximately \( \frac{1

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23.75%

24.00%

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