Certified Valuation Analyst (CVA) Practice Exam

What is one major reason for conducting a business valuation?

1. To strategize marketing efforts

2. To comply with legal tax requirements

3. To establish employee performance metrics

4. To forecast market trends

The correct answer is: To comply with legal tax requirements

One major reason for conducting a business valuation is to comply with legal tax requirements. Businesses often need to establish the fair value of their assets and operations for various tax purposes, such as transactions involving the sale of assets, partnerships, mergers, or estate planning. Accurate valuation is crucial in these situations to ensure compliance with tax laws and regulations, helping to avoid potential legal issues or penalties tied to misreported values. The other choices, while important in their own right, do not directly relate to the fundamental need for a business valuation. Strategizing marketing efforts pertains to business growth and market position rather than the specific financial assessment of the business. Establishing employee performance metrics focuses on internal management tactics and human resources, which are not objectives of a business valuation. Forecasting market trends involves market analysis and predictions based on various economic factors, differentiating it from valuing a business's current worth or legal standing.