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Question 1

The advantages of the binomial model over the Black-Scholes model and its variations include:

AThe binomial model's ability to incorporate a variety of conditions which can increase accuracy, including variations in expected volatility, dividends rates and risk-free discount rates as well as transaction costs.

BThe binomial model can be quite useful for valuing employee stock options as it is possible to include potential dilution, blackout periods, delayed vesting provisions, early exercise patterns and employee turnover in the model by increasing the number of periods and adjusting the option values at each node

CBinomial model does not require more computations

DBinomial Model does not have any liquidity problem

Answer : A, B

Question 2

A valuation of the assets can even be important in ___________ in which a weighted average cost of capital method is used if the analyst uses the asset base as a determinant of the amount of debt that the company can support.

ALabor-intensive companies

BCapital-intensive companies

CBlue chip companies

DGrowth companies

Answer : B

Question 3

The practical effect/s of Special Valuation Rules is/ are:

ACumulative dividends or distribution rights

BNon-voters having voting rights

CFlexible and optional redemption rights

DNon-lapsing conversion rights

Answer : A, D

Question 4

Which of the following are categories in which projections are usually necessary?

AAntitrust, lost business opportunity, breach of contract

BInfringement of patents, copyrights or trademarks

CGoodwill

DDiversified businesses

Answer : A, B

Question 5

One consideration in the choice between the cross purchase versus redemption form of buy-sell agreement is:

ATo find non-controlling owner

BThe number of shareholders o partners involved

CThe interest from transferring party

DNumber of party-to-party relationship

Answer : B

Question 6

A unique feature of Merger stat/Shannon Pratt's control premium study is a transaction code by type of transaction. i.e.:

AF- Financial
H-Horizontal integration
V-Vertical integration
C-Conglomerate

BF- Financial
H-Hedged Value
V- Vertical integration
C- Corporations

CF- Funds
H- Horizontal value
V- Vertical value
C- Control value

DC- Control and control risk
H- Hedging
F- Financial
V-Vulnerability

Answer : A

Question 7

It is possible to examine the uncertainty of income to the various suppliers of capital by investigating the uncertainty of income to the company. The greater the uncertainty of income to the company:

AThe greater the uncertainty of the income to the investor in the company

BThe lesser the uncertainty of the equity to the investor in the company

CThe greater the uncertainty of the equity to the investor in the company

DThe lesser the uncertainty of the income to the investor in the company

Answer : A

NACVA Certified Valuation Analysts CVA Exam Questions