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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Why might a company experience a discount for lack of marketability?

Due to a strong competitive advantage
Due to limited shares being available for trading
Because of high anticipated growth rates
As a result of recent acquisitions

The correct answer is: Due to limited shares being available for trading

A company may experience a discount for lack of marketability primarily due to limited shares being available for trading. This situation typically arises when a company is privately held or has a small number of shares available in the market. When investors cannot easily buy or sell shares, there is generally a lower demand, which can lead to a reduced value for those shares. This discount reflects the risk associated with the illiquidity of the investment; potential buyers are aware that they may have difficulty reselling the shares in the future, consequently lowering their willingness to pay a premium price. In contrast, factors like a strong competitive advantage, high anticipated growth rates, or recent acquisitions are more likely to enhance a company's valuation and attractiveness in the market. Such attributes can negate the risks associated with marketability issues, thus explaining why they don't contribute to a marketability discount.