Chapter 2 ASSET BASED VALUATIONfan Mee Ne Reel say) OLOGIES | MULTIPLE CHOICE PROBLEM. Write the letter of the best answer before the number of the question or statement being answered 1. The following data were gathered from the annual report of Thorn Products Market price per share Php 30.00 Number of ordinary shares 10,000 Preferred stock, 5%, P100 par Php 10.000 Ordinary equity Php 120,000 The book value per share is a. Php30.00 b. Php 15.00 c. Php 14.00 d. Php12.00 2. The following information was reported by Adele Company in their financial statements: Current Assets Php250,000 Non-current Assets 760,000 Current Liabilities 60,000 350,000 Non-current Liabilities How much is the book value of Adele Company? a.Php190,000 = : b. Php600,000 eb \ c. Php660,000 d. Php1,010,000 3. Sam, an analyst, is looking at the 2019 financial statements of Smith Company and gathered the following details: Cash Php310,000 Receivables 320,000 Inventory 200,000 Property, Plant and Equipment 690,000 Accounts Payable (175,000 ) Long-term Notes Payable (500,000) Ordinary Share Capital (250,000 312,500 outstanding shares, P1.25 par) 532,500 Retained EarningsThere are no other issuances or buyback of shares in 2019. How Much ‘ is the book value per share of Smith Company? a, Php6.08 b. Php3.38 c. Php2.13 d. Php1.25 4. ZYX Incorporated showed the following balances in its financial statements for 2019: Current Assets Php 510,000 Non-current Assets 1,065,000 Current Liabilities 355,000) Non-current Liabilities 1,000,000 Outstanding ordinary shares 500,000 What is the book value per share of ZYX incorporated? a. Php0.44 b. Php1.15 c. Php3.15 d. Php5.86 5. Accounting records of Arabica Company showed the following items as of December 31: Current assets Php 950,000 Current liabilities (600,000 Noncurrent assets 3,500,000 Noncurrent liabilities 2,000,000 Ordinary shares outstanding, January 1 400,000" Ordinary shares outstanding, December 31 500,000 In July 1, Arabica Company issued additional 100,000 ordinary Shares to fund its investment plan. How Much is the book value of Arabica Company as of December 312 a. Php4,450,000 b. Php3,850,000 ¢. Php2,450,000 d. Php 1,850,000 eeLee ery y METHODOLOGIES 6. Intense Corporation showed the following balances in its financial records as of December 31: Current Assets Php 880,000 Current Liabilities 500,000 Non-current Assets 3,000,000 Non-current Liabilities 1,500,000 Outstanding ordinary shares, beginning 1,200,000 Outstanding ordinary shares, ending 1,500,000 Intense Corporation issued additional 300,000 ordinary shares on June 1 as part of its financing plan. What is the book value per share of Intense Corporation as of December 31? a. Php1.57 TA 3, 10,0 wt (ase, 66) b. Php1.39 . 2 09) c. Php1.37 d. Phpt.25 7. The following information are related to Citrus Corporation: Sales Php 15,000,000 Asset Turnover 3.0x Debt to Equity Ratio 1.5 Weighted average outstanding shares 200,000 shares Asset turnover only considered asset balance as of December 31 How much is the book value per share of Citrus Corporation based on the foregoing information? a. Php75.00 b. Php25.00 c. Php15.00 d. Php10.00 = sm Jie 8. Spice Corporation reported 500,000 ordinary shares at the beginning of 2020. In the beginning of the second quarter, convertible bondholders opted to exercise their option to convert to shares, resulting to additional 100,000 shares. In October 1, Spice Corporation bought back 50,000, shares as they have spare cash. What is the weighted average outstanding shares for 2020? a. 600,000 shares wT teh b. 562,500 shares oe a 1 c. 550,000 shares a + d. 500,000 shares eee te9. Hercules Company reported the following balances as of Decembg, 31, 2019: Current assets Php 750,009 Non-current assets 1,400,009 Current liabilities 400,009 500,009 Non-current liabilities Outstanding ordinary shares 1,000,000 shares In 2020, analytics showed that current assets increased by 25%, non. current assets increased by 20% and current liabilities by 10%. Half of the non-current liabilities were also paid. At the beginning of 2029 additional 250,000 shares were issued by Hercules Company. How much is the book value of Hercules Company as of December 31, 2019? I a Php1,250,000 b. Php1,650,000 c. Php2,150,000 d. Php3,050,000 10. Refer to Hercules Company. How much is the book value per share in 2019? a. Php3.05 bo b. Php2.15 ot) c. Phpt.65 Usn/ d. Php1.25 ‘mn 11. Refer to Hercules Company. How much is the net working capital as of December 31, 2020? : z a. Php247,500 “* 5/9" 12s) b. Php350,000 "8" "°° _c. Php497,500 d. Php937,500 12. Refer to Hercules Company. How much is the book value per share as of December 31, 2020? €.PhP1.93 Mined tA b. Php1.54 iyadtcd NOM 1 c. Php1.25 ae d.Php1.00 casVALUATION CONCEPTS AND METHODOLOGIES 43, As of December 31, 2020, Cocoa Corporation reported the following items in its balance sheet: Cash Php 240,000 Receivables 520,000 Inventory 350,000 Property and plant 3,000,000 Equipment 850,000 Accounts payable 400,000 Short-term notes payable 500,000 Long-term debt 1,000,000 Weighted average of 250,000 outstanding shares in 2020 Cocoa Corporation contracted with a third-party appraiser to determine how much is the replacement cost of its assets. Based on the report of the appraiser, the property and plant has replacement cost of 125% of its reported value. On the other hand, the equipment only commands replacement cost of 70% of its value. According to.the appraiser, the equipment was designed using an old technology, thus, the lower replacement cost. Other assets and liabilities are valued fairly. How much is the non-current assets reflected in the books of Cocoa Corporation as of December 31, 2020? a. Php4,960,000 b, Php3,850,000 “c. Php2,850,000 4. Php2, 150,000 14. How much is the book value per share of Cocoa Corporation as of December 31, 2020? a. Php19.84 b. Php16.24 X c. Php15.84 d. Php12.24 15. How much is the replacement value of the non-current assets of Cocoa Corporation? P a, Php3,345,000 b. Php3,850,000 cc. Php4,345,000 d. Php5,455,000ie... | 16. How much is the feplacement value per share of Cocoa Corporation? a. Php21.82 b. Php19.84 c. Php14.22 d. Php12.24 17. Caramel Company showed the following balances in its balance sheet as at year-end: Current Assets Php 450,000 Non-current Assets 1,150,000 Current Liabilities 300,000 Non-current Liabilities 900,000 120,000 shares Weighted average of outstanding shares According to the appraisal, 60% of the non-current assets can be replaced at 150% of their reported book value while the remaining balance of the non-current assets has replacement value of 65% Reported balance of other items approximates their replacement value. How much is the replacement value of Caramel Company at year- end? a. Php584,000 b. Php400,000 c. Php1,784,000 d. Php1,600,000 18. Refer to Caramel Company. What i is r e book value per ‘share of Caramel Company? pacer Y a. Php3.33 ‘ “5 b. Php4.87 c. Php13.33 semen d. Php14.87 2 Ce, Samsan Company, a start-up company which developed its own ita imaging algorithm, is trying to estimate the value of their company. Their latest financial statements showed the following information: | eeCurrent Assets 1,250,000 Non-current Assets 4,000,000 Current Liabilities 850,000) Non-current Liabilities (250,000 ) Tie Part of their non-current assets is a patent for the technology they developed which has a recorded balance of P2,500,000. An equity investor is looking at buying the company. Samsan Company tried to trace back the costs of developing the patent and determined that the reproduction cost of that particular patent is at P3,000, 000. What is the book value of Samsan Company? a. PhpS,250,000 b. Php5,000,000 c. Php4,150,000 ‘d. Php4,000,000 20. Refer to Samsan Company. What is the reproduicun value of Samsan Company? eh pe Py 4 a. Php5,000,000 " - b. Php4,650,000 c.Php4,150,000 d. Php4,000,000ee ee a ks ey oo F PROBLEMS ; P2-1. Lykajems Inc. showed the following balances in its audited finance ‘al statements. Current Assets PhP2,500,000 Non-current Assets "1 8,000,000 Current Liabilities ; 2,100,000 Non-current Liabilities ! 5,000,000 i a Weighted average outstanding 2,000,000 shares ordinary shares Compute for the following: 1. Book value of Lykajems, Inc. 3.4m 2. Book value per share iy J 20 oh P2-2. The accountant of Green Tea Company is looking at the different | account balances in the company records. The accountant was asked to provide preliminary valuation numbers for an upcoming management discussion. The following account balances were generated from the records Accounts payable 20,000 Accounts receivable 70,000 Accrued liabilities. 1,000 } Cash 50,000 intangible assets 70,000 * Inventory 52,000 Long-term investments 150,000 Long-term liabilities 125,000 * Marketable securities * 46,000 Notes payable (short-term) 25,000 4 Property, plant, and equipment 705,000 «Prepaid expenses 3,000 Requirements: 1. Total current assets y Total non-current assets Total current liabilities Total noncurrent liabilities ~ Book value of Green Tea Company (4 Book value per share ee ee OAaONVALUATION CONCEPTS AND METHODOLOGIES p2-3. The balance sheet of Koala Company as of December 31 is presented below: Assets 2019 2020 Cas! P 45,000 P 60,000 Cerletoble securities 60,000 85,000 ‘Accounts receivable (net) 60,000 80,000 Inventory 70,000 100,000 Property, plant and equipment (net) 300,000 __280,000 Total assets P490,000_ _P545,000 "Liabilities and Shareholders’ Equity " Accounts payable 35,000 45,000 Short-term notes payable “50,000 50,000 Bonds payable “85,000 75,000 Ordinary shares 200,000 225,000 Retained earnings 120,000__ 150,000 Total liabilities and shareholders’ equity P490,000___ P545,000 Ordinary shares has par value of P1.00)per share. In April 1, 2020, the Koala _ Company issued additional shares as part of its funding plan. wpe Compute for the following: 1. Book value as of December 31, 2019 ~ 4%T - 2. Book value per share as of December 31, 2019 3. Book value as of December 31, 2020 = sust - «4s 4. Book value per share as of December 31, 2020 = P2-4. The balance sheet of Argentum Company is presented below: Assets 2020 Cash P 160,000 Trade receivables 580,000 Inventory 340,000 Property, plant and equipment (net) 350,000 Total assets Liabilities and Shareholders’ Equity Accounts payable 420,000 Long-term bonds payable 900,000 Ordinary shares 1,500,000 Retained earnings 450,000 Total liabilities and shareholders’ equity P3,270,000The owners of Argentum Company is looking at how much they can sell the company. They are assessing how much is the range of the firm value baseq on company assets. A third-party appraisal was made for property, plant ang equipment which resulted with the following findings: property and buildings with book value of P1,000,000 has market value of P1,500,000. The Femaining portion is for equipment which was deemed can be replaced at 80% of its book value. Other assets and liabilities approximate their replacement values. Compute for the following: 1. Book value of Argentum Company fu 2. Replacement cost of property, plant and equipment 3. Replacement value of Argentum Company P2-5. The balance sheet of Valentine Company is presented below: Assets 2020 Cash P 350,000 Trade receivables 800,000 Equipment 1,250,000 Intangible assets 500,000 Total assets Liabilities and Shareholders’ Equity Accounts payable 200,000 Short-term notes payable 200,000 Ordinary shares 2,000,000 Retained earnings 150,000 Total liabilities and shareholders’ equity P2,550,000 The intangible assets — a patent to a new auditory technology — is self- developed three years ago. An investor is looking at buying the company and Valentine Company would like to give an initial quotation. Since the technology is unique and does not have any comparables, the software development team quoted that the Cost of reproducing the intangible assets is at 120% of its net asset cost. Compute for the following: 1. Book value of Valentine Company 2. Reproduction cost of intangible assets 3. Reproduction value of Valentine Companyp2-6. The summarized balance sheet of Mundane Corporation is shown below: Current Assets PhP23,500,000 Non-current Assets 400,000,000 Current.Liabilities 15,000,000 20,000,000 Non-current Liabilities Weighted average outstanding ordinary shares 3,000,000 shares Non-current assets can be sold in the market at 80% of its recorded value. Compute for the following: 4. Book value of Mundane Corporation 2. Book value per share 29Chapter 3 LIQUIDATION BASED VALUATIONFie wie eee er we MEST gy = fe VEUIU Fe : SHE bey the number of the question or statement being answered. org 1. WW Inc. recently has had financial difficulty and is being liquidatey The fitm has a liquidation value of Php 2,000,000 — Php 800,000 from the" ® fixed assets that served as collateral for the mortgage bonds ang Ph, 1,200,000 from all other assets (all prior claims have been Satisfieg) The firm's current capital structure is as follows: Unsecured bonds — Php 1,000,000 40050 Mortgage bonds — Php 800,000 Preference shares — Php 200,000 Ordinary shares — Php 500,000 How much will the Ordinary shareholders from the liquidation? Cher oath J.am a. Php 1,000,000 Peer ms 2e0T) b. Php 666,667 a) c. Php 396,000 d. Php 0 2. Tang Mining is considerin, Price of Php 6,000,000, The Zang is for a Special piece of generate after-tax cash flows 1g the acquisition of Zang Mining at a cash primary Motivation for Tang’s Purchase of f drilling equipment that it believes will S if Php 2,000,000 @. Php 1,795,690 ax ara b. Php 1,500,000 Py . Php (1,795,690) “° d. Php (1,500,000) °°!" ‘ab 3. At year end, Lysle Company balance 50 million, total liabilities of Php 9 milli pect Showed total assets of Php shares outstanding. If L. and YsIe€ could sell itg assets for Php ayre® Of ordinary P40 liquidation value per share of Ordinary Share is mnillion, Lysie 8 Phe 40.00 eg ata ena b. Php 20.00“ EE sm Muda ©. Php 10.00 Both stand d. Php 5.00 Bpeiteg % On4. A firm reported current assets of Phy liquidated at 80 percent of book value, preferred stock, equal Php 270,000. TI common stock outstanding. What is t of common stock? i P 1,000,000, which can'be Total liabilities, including he firm has 20,000 shares of he liquidation value per share a. Php 50.00 Pi | 1m x. $= SOT + Adjaated vahuk b. Php 40.00 } Ardfucled vole Coot c. Php 36.50 Tet Leb tn) d. Php 26.50 Wa utsoarhg S07 Ube shae £G.5t 5. Kristine, a shareholder, received P10 per share as liquidation value for the 1,000,000 shares of Cathy Company that she owned Kristine owned 10% ownership stake in Cathy Company. How much was the liquidation value of the Cathy Company? a. Php 10 million b. Php 50 million c. Php 100 million d. Php 124 million 6. Magic Homes is to be liquidated. All creditors, both secured and unsecured, are owed Php 2 million. Administrative costs of liquidation and wages payments are expected to be Php 500,000. Asale of assets is expected to bring Php 3 million after all costs and taxes. What is the liquidation value of Magic Homes? a. Php 3,000,000 2 ete. of b. Php 2,000,000 f ‘ c. Php 1,000,000 5 : aa + - d. Php 500,000 — 7. The PQ Partnership is not going well, and the partners have decided to liquidate the business. The partners share income and loss in a ratio of 2:1. PO Partnership reported cash of Php 50,000 and building valued at Php800,000. They owe Php 500,000 to Various creditors. Upon checking with realtors, they can sell the building at Php 600,000 based on current prices. How much is the ‘iquidation value of PQ Partnership? a.Php 350,000 b. Php 150,000 figure & coeditrm c. Php 850,000 W 1501 d. Php 650,0008. Leth Company is currently undergoing liquidation Proceedings and is consulting with potential buyers about the amount it n recover from the sale of its assets with book value of 7,000,009 Based on the quotations, the assets can fetch price of P6,000,009 if it will be sold within one year as negotiations and bidding will allow interested buyers to compete for the purchase. An interested buyer is willing to pay for P4,000,000 to purchase the assets Now. Leth Company has liabilities to settle amounting to P2,000,000. How much is the orderly liquidation value of Leth Company? a. Php 6,000,000 ; weatset f seld : Gm b. Php 5,000,000 . c. Php 4,000,000 » of 9. Refer to Leth Company. How much is the forced liquidation value of Leth Company? Pa a. Php 6,000,000" ile a b.Php 5,000,000 “*""*e c. Php 4,000,000 d. Php 2,000,000 4m aM 10. A firm’s common stock currently sells for Php 75 per share. The firm has total assets of Php 1,000,000 and total liabilities, including Preferred stock, of Php 350,000. If the firm has 10,000 shares of common stock outstanding, how much is the liquidation value per Share is this approximates book value? a. Php 100 k ct b.Php75 iy, c. Php 65 d. Php 35Chapter 4 INCOME BASED VALUATIONmul the nummy ns Cia METHODOLOGIES LTIPLE CHOICE PROBLEM. Write the letter of the best answer before er of the question or statement being answered ) HBB Company for the last ten years, has earned and had cash flows of about Php 500,000 every year. As per the predictions of the company’s earnings, the same cash flow would continue for the foreseeable future. The expenses for the business every year is about Php 100,000 only. Based on the available Public information a Php 4 million Treasury bond has a Prevailing return of Php 400,000 annually. Using Capitalization of Earnings approach, what is the value of HBB Company? @> Php 4,000,000.00 . B. Php 3,000,000.00 a0 c. Php 2,000,000.00 d. Php 1,000,000.00 HCB Company for the last ten years, has earned and had cash flows of about P600,000 every year. As per the predictions of the company’s earnings, the same cash flow would continue for the foreseeable future. The expenses for the business every year is about P500,000 only. Based on the available public information a Php 4 million Treasury bond has a prevailing return of Php 40,000 quarterly. Using Capitalization of Earnings approach, what is the value of HCB Company? Php 3,000,000.00 Php 2,500,000.00 Php 3,500,000.00 Php 1,000,000.00 Heart, Inc. plans to sell its business and has used Capitalization of Earnings to be an appropriate valuation method with a stable cashflow of Php 1,000,000.00 for the last 5 years. Forecast shows that similar level of cashflow would continue in the next several years. With the stability of the business it was sold to HBB, Inc. for Php 6,000,000.00 with premium of Php 1,000,000.00. Similar instruments based on the available data is a Treasury Note with a determined quarterly interest rate. Annual Operating Expenses is 29Goi Php 600,000.00 Compute for the capitalization rate used by Hear, Inc. one > 40T/sm = +08 or a. 2% - c b. 4% wo. WOT c. 8% ye x d. 10% .) Hai-dee is looking to buy a property that costs Php115,000, ang can be leased out for Php750 a month. She has done some research and has determined the net operating expenses to be Php5,000 Per year. Her desired cap rate is 10%. What is the appraisal value of this property using the capitalization of earnings approach? i Php 40,000.00 ( 950 x1 ok) =4K/ 1 Php 42,500.00 - Php 45,000.00 Php 50,000.00 29 o\p . Heinz, Inc. expects to generate earnings over the next five years of Php50,000.00; Php60,000.00; Php65,000.00; Php70,000.00 and Php75,000.00. Using the Capitalization of Earnings Method, what is the estimated value of the firm using 10.00% required rate of return? Php 640,000.00 Php 657,378.72 Php 657,738.72 Php 604,000.00 a0 op Herbert, Inc. expects to generate earnings over the next five years of Php50,000.00; Php60,000.00; Php65,000.00; Php70,000.00 and Php75,000.00. Using the Capitalization of Earnings Method, what is the estimated value of the firm using 8.00% required rate of return? Php 600,000.00 Php 800,000.00 Php 500,000.00 Php 700,000.00 aon 48 Emesto, Inc. has projected average earnings every year of Php 100 Million. Debt to Equity Ratio is 3:1. After tax cost of debt is 5% while cost of equity is 10%. The Board of Directors of the companydecided to sell the company for P1 Billior Economic Value Added (EVA). "cc = ' Pir apler hae os) ’.. Php 37,500,000.00 > ear +) 03% b. Php 50,000,000.00 aad s ¢. Php 0.00 eae a ew (48 « .002¢) d. Php 25,000,000.00 @)' using Weighted Average Cost of Capital (WACC), ignoring taxes, the cost of capital of a company with debt ratio of 0.75:1 comput and is paying yearly average interest for its loans of 4% and dividend rate of 5% yearly. : a. 4.00% aise’ a b. 4.25% be fe c. 4.50% ‘: / d. 5.00% al Asset Pricing Method (CAPM), compute for the cost of ¥ 5%, market return of 12% and g. Using Capit capital (equity) with risk-free rate oF Beta of 1.3. . ae a. 14.01% ats b. 14.10% ee c. 14.00% d. 14.11% compute for the cost of .g Method (CAPM), et return of 8% and 10. Using Capital Asset Pricin 4%, mark capital (equity) with risk-free rate of Beta of 1.5. ne, a. 10.00% oe b. 11.00% c. 12.00% d. 13.00% market return of 8%, prevailing %, Beta of 1.5, x rate of 30% and Equity ratio of 30%, cost of capital 11, With risk-free rate of 5' credit spread of 3%, ta compute for the weighted average a. 6.00% ver oe + 1S 6 b. 6.77% c. 7.00% d. 7.77% pier market return of 8%, prevailing 6%, Beta of 1.5, d Equity ratio of 30%, Using 12. With risk-free rate of credit spread of 3%, tax rate of 30% an CAPM method compute for the cost of equity. 100a, 9.00% as Sw b. 6.77% c. 8.00% + 03 d. 8.77% an, 13. The appropriate WACC of a firm is 6.43%. With risk-free rate Of 4%, market return of 8%, prevailing credit spread of 3%, tax rate of 30% and Equity ratio of 30%, compute for the volatility of stocks or Beta 790) a. 1.00 wac (co x We) © (kd ew) k ug b. 1.25 Gs ae 49.70%, ' c. 1.50 > ale + anny a. 1.75 007, Leen 14, The appropriate WACC of a firm is 6.43%. With risk-free rate Of 4%, market return of 8%, prevailing credit spread of 3%, tax rate of 30% and Equity ratio of 30%, compute for the after_tax cost of debt. a 4.90% yy b. 5.00% ~~ ~ 64 c. 7.00% parila eal aee at 10.00% = 0.044 ow 4eW 15. SPPE Corp. is planning to expand and new projects is expecting to earn an average of Php375,000 annually. If the project requires for Php5,000,000 investment at 10% cost of capital. Compute for the Economic Value Added. a. Php 125,000.00 YA = far b. (Php 125,000.00) c. Php 875,000.00 d. (Php 875,000.00) a. Php 150,000.00 b. (Php 150,000.00) c. Php 600,000.00 d. (Php 600,000.00) 17. SPRO Corp. is planning to expand and New projects is expected to have an EVA of Php200,000.00. The annual Cost of capital at 10% amounts to Php400,000.00. What is the average monthly earning projected for this project?am c Php 600,000.00 200 + YT = woot [ir a. b. Php 50,000.00 php 60,000.00 g. Php 500,000.00 =OT Fe SMO 0 eee ean has earned and had cash flows of rod i ar. As per the predictions of the "i 01 earnings, the same cash flow would continue for the faresaeatisele e expenses for the business every year is about P500,000 future. Th only. Based on the available public information a P4 gong has a prevailing return of P40,000 quarterly. milion Treasury using Capitalization of Earnings approach, assuming SLMA would sell 20% of its shareholdings, what will be the minimum selling price? a. Php 2,500,000.00 Ao Gr wk + 5. Php 500,000.00 (+) = x20, + 20S 420 ©. Php 1,500,000.00 \, = d. Php 1,000,000.00 4» 0 Equity Ratio of 3:1. After tax cost of debt is is 10%. The Board of Directors of the of the company for Php 1 Billion. lyaverage earnings assuming an (Cupxeae) + (00x SPLI, Inc. has a Debt t 5% while cost of equity company decided to sell 100% Compute for the projected mon EVA of Php 57,500,000.00 - a. Php 37,500,000.00 = b. Php 40,000,000.00 ¥ c. Php 420,000,000.00 d. Php 400,000,000.00 2 Rom 7%. With market return of 8%, and Equity ratio of ta of 1.5? 20. The appropriate WACC of a firm is 6.7 tax rate of 30% / prevailing credit spread of 3%, 30%, what is the risk free rate of the firm with Be! a. 4% ‘b, 5% c. 6% d. 7%