Certified Valuation Analyst (CVA) Practice Exam

What are the three main approaches to a business valuation?

1. Income, Market, and Replacement

2. Asset, Market, and Going-concern

3. Cost, Market, and Future Earnings

4. Income, Cost, and Risk Assessment

The correct answer is: Asset, Market, and Going-concern

The three main approaches to business valuation are indeed the Income, Market, and Asset approaches. Each of these methodologies provides a unique perspective on determining the value of a business, and they can be applied depending on the specific circumstances surrounding the valuation. The Income approach focuses on the future economic benefits that a business is expected to generate, typically through cash flow or earnings projections. This approach estimates the present value of those future benefits, allowing valuators to assess how much a business is worth based on its income potential. The Market approach, on the other hand, examines the sale prices of comparable businesses in the marketplace to help determine the value of the business in question. This approach relies on the principle of substitution, which assumes that a reasonable buyer would not pay more for a business than the price of a comparable business. Lastly, the Asset approach is centered on the value of the company's assets. This method considers both tangible and intangible assets and determines the business value based on the total sum of its parts. It's particularly useful for asset-heavy businesses or when the company is being liquidated. Each approach has its own set of strengths and weaknesses, and the choice among them often depends on the type of business being valued, the purpose of the valuation, and the availability of