Certified Valuation Analyst (CVA) Practice Exam

Which statement is true regarding the consideration of valuation approaches?

1. All valuation approaches must be considered.

2. All valuation approaches must be applied.

3. Indications of value should be averaged.

4. There are eight main approaches to value.

The correct answer is: All valuation approaches must be considered.

The assertion that all valuation approaches must be considered is correct because a comprehensive valuation process requires evaluating various methodologies to ensure a well-rounded assessment of value. Each approach—such as the income, market, and cost approaches—provides unique perspectives and insights into a business's worth. By considering all approaches, a valuation analyst can identify the most relevant and applicable methods for the specific context of the valuation, accommodating the peculiarities of the business and market conditions. This thorough consideration increases the credibility and accuracy of the valuation conclusion. While it's important to consider all approaches, not every approach needs to be applied in each valuation scenario. Some methods may be more applicable based on the nature of the business or the purpose of the valuation. Averaging indications of value, while a common practice, is not a requisite step in every case. Furthermore, stating that there are eight main approaches to value lacks clarity, as value determination typically centers around the three primary approaches rather than a fixed number of methodologies.