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NACVA Exam CVA Topic 6 Question 94 Discussion

Actual exam question for NACVA's Certified Valuation Analysts exam
Question #: 94
Topic #: 6
[All Certified Valuation Analysts Questions]

Most analysts agree that one of the most important factors in the estimation of the direct capitalization rate for the excess earnings is the perceived persistence of the excess earnings. The longer the time period and the greater the uncertainty of the expectation of excess earnings, the __________the direct capitalization rate.

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Suggested Answer: A

by Reid at Aug 27, 2024, 08:28 PM

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Ena
10 days ago
The answer is obviously B. Greater risk means greater return, duh. Though I'm surprised they didn't ask about the impact of inflation on the capitalization rate - that's the real killer question here.
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Lasandra
10 days ago
The direct capitalization rate? Is that like when you directly capitalize on your boss's embarrassing mistake? Asking for a friend...
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Renea
21 days ago
I dunno, this feels like a trick question. Is it D? It depends on the specific situation, right?
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Margret
23 days ago
That's a good point, maybe it depends on the specific situation.
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Howard
25 days ago
Hmm, the question doesn't mention anything about risk. I think the direct capitalization rate should be lower if the excess earnings are less persistent. A sounds right to me.
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Denny
10 days ago
User 2: Definitely, a lower direct capitalization rate makes sense in that situation.
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Deangelo
14 days ago
User 1: I agree, if the excess earnings are less persistent, the direct capitalization rate should be lower.
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Johna
25 days ago
But wouldn't higher uncertainty lead to a higher direct capitalization rate?
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Suzi
26 days ago
The longer the uncertainty, the greater the risk, so the capitalization rate should be higher. I'll go with B.
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Veronika
10 days ago
It makes sense to choose B) Greater in this case.
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Garry
12 days ago
I agree, the greater the uncertainty, the higher the capitalization rate should be. B) Greater
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Margret
27 days ago
I disagree, I believe the answer is B) Greater.
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Johna
1 months ago
I think the answer is A) Lower.
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