Certified Valuation Analyst (CVA) Practice Exam

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Prepare for the Certified Valuation Analyst (CVA) Test. Study with flashcards and multiple choice questions. Each question includes hints and explanations to help you get ready for your exam!

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To utilize the dividend paying capacity method of valuation, what is required of the company being valued?

It must have a stable management team
It must have paid a dividend or currently pay dividends
It must show consistent revenue growth
It must have a diversified portfolio

The correct answer is: It must have paid a dividend or currently pay dividends

The dividend paying capacity method of valuation focuses on a company's ability to generate and distribute dividends to its shareholders. This method emphasizes the significance of historical and current dividend payments as indicators of financial health and performance. To effectively apply this approach, it is essential that the company under consideration has either a history of paying dividends or is currently engaged in paying dividends. By requiring the company to have paid a dividend or to be currently paying dividends, this method reflects the idea that dividends are a direct return to shareholders, making it a vital aspect in evaluating the company’s worth. The presence of dividends indicates that the company has sufficient earnings to distribute, which is often viewed as a sign of stability and profitability, thus making the dividend paying capacity method relevant for valuation.