Chapter 1 Reviewer

1. When is the value of a business determined?

a. At any random point in time

b. Only after liquidation
c. At a specific point in time
d. Over several years

Answer:c. At a specific point in time

2. What primarily influences the variation in a business's value?

a. Past financial records

b. The ability to generate future cash flows
c. Size of the business
d. Number of employees

Answer:b. The ability to generate future cash flows

3. What factor dictates the appropriate rate of return for investors?

a. Market conditions
b. Company ownership structure
c. Tangible assets
d. Industry popularity

Answer:a. Market conditions

4. What impact do net tangible assets have on firm value?

a. They are irrelevant to firm value

b. They decrease firm value

c. They can positively impact firm value
d. They create liabilities for the business

Answer: c. They can positively impact firm value

5. What reduces the value of a business during a transfer of ownership?

a. Transferability of future cash flows is low

b. High employee turnover
c. Lack of market demand
d. Presence of goodwill

Answer: a. Transferability of future cash flows is low

6. How does liquidity affect a business's value?

a. Higher liquidity increases value

b. Lower liquidity increases value
c. Liquidity has no impact on value
d. Liquidity decreases the demand

Answer: a. Higher liquidity increases value

7. Why is the value of a business only valid at a specific point in time?

a. Future cash flows do not matter

b. Market conditions and external factors constantly change
c. Tangible assets define value forever
d. It is a regulatory requirement

Answer: b. Market conditions and external factors constantly change

8. What drives the market's role in determining the rate of return?

a. Business size and employee count

b. Risk level and economic trends
c. Ownership structure
d. Historical earnings

Answer: b. Risk level and economic trends

9. Which of the following best describes net tangible assets?

a. Assets like brand reputation and patents

b. Physical assets such as property and equipment
c. Future cash flows
d. Intangible liabilities

Answer: b. Physical assets such as property and equipment

10. Why is transferability of future cash flows important for valuation?

a. It ensures stability for buyers

b. It shows market demand
c. It builds goodwill
d. It eliminates competition

Answer: a. It ensures stability for buyers

1. Which of the following is NOT one of Porter’s Five Forces?

A) Threat of New Entrants

B) Bargaining Power of Buyers
C) Government Regulation
D) Industry Rivalry

Answer: C) Government Regulation

2. What does Industry Rivalry refer to in Porter’s Five Forces model?

A) The ability of customers to negotiate better prices

B) The nature and intensity of competition among existing firms
C) The likelihood of new companies entering the market
D) The influence of suppliers on pricing and availability

Answer: The nature and intensity of competition among existing firms

3. Which factor can reduce the threat of new entrants?

A) Low startup costs

B) High brand reputation of existing companies
C) A large number of small competitors
D) Customers switching easily between brands

Answer: High brand reputation of existing companies

4. How does innovation help a company combat the threat of substitutes?

A) It allows a company to reduce competition.

B) It helps create unique products that differentiate from substitutes.
C) It increases buyer power.
D) It makes supplier power irrelevant.

Answer: It helps create unique products that differentiate from substitutes.

5. What is the primary goal of Porter’s Five Forces model?

A) To assess a company’s internal strengths and weaknesses

B) To evaluate the attractiveness and competitiveness of an industry
C) To analyze macroeconomic factors affecting business
D) To determine a company’s brand positioning

Answer: To evaluate the attractiveness and competitiveness of an industry

1. What does "uncertainty" mean in valuing a company?

a) Confidence in the exact value of the company

b) The possibility of changes in value due to uncertain factors
c) The company's value is unaffected by the market
d) The actual value is always the same as the estimate

Answer: b) The possibility of changes in value due to uncertain factors

2. How does a change in the market affect a company's valuation?

a) It doesn't affect the company's value

b) It can cause the company's value to rise or fall
c) It prevents the company's value from changing
d) It makes the company's value certain

Answer: b) It can cause the company's value to rise or fall

3. Which part of the valuation process involves assumptions and guesses by analysts?

a) Future estimates
b) Data analysis
c) Auditing financial statements
d) Calculating the discount rate

Answer: a) Future estimates

4. Why is uncertainty higher in some industries than in others?

a) Because industries react the same to the economy

b) Because industries are sensitive to market changes in different ways
c) Because industries are not affected by innovation
d) Because some industries don't need analysis

Answer: b) Because industries are sensitive to market changes in different ways

5. What is the impact of new businesses and innovations on established companies?

a) They have no impact on the company's value

b) They can cause uncertainty and changes in the company's value
c) They help improve the company's value
d) They strengthen the company's market share

Answer: b) They can cause uncertainty and changes in the company's value

1) Which analysts estimate a firm's intrinsic value by evaluating its financial health and growth
Potential? B.

A. Financial Analysts
B. Fundamental Analysts
C. Analyn Muko

2.) Which focuses on companies with growth potential but poor management? A.

A. Activist Investors
B. Chartists
C. Irish Divine Moral
3.) They use metrics such as price, volume, and short sales to forecast stock price movements
and believe in investor psychology. A

A. Chartists
B. Financial Analysts
C. Happy Birthday Khai

4.) They use new firm-related information to predict market reactions and stock price changes.
C

A. Stock Selection
B. Charly Dimayuga
C. Information Traders

5.) conduct in-depth valuation of investments and report to portfolio managers or committees. B

A. Sell-side analysts
B. Buy-side analysts
C. Pericos analysts

1. What is a competitive position, and how is it typically measured?

a) The number of products a company sells

b) A company's standing in the market, measured by market share and competitive advantage
c) The amount of money a company spends on marketing
d) The total number of employees in a company

(Answer: b)

2. Which of the following is NOT one of Michael Porter’s generic strategies?

a) Cost Leadership
b) Differentiation
c) Market Domination
d) Focus

(Answer: c)

3.Why is understanding a company’s business model important in financial analysis?

a) It helps determine how the company makes money and sustains profitability
b) It shows how much tax the company pays
c) It predicts stock market fluctuations
d) It determines the company’s advertising strategy

(Answer: a)

4. Which of the following is a common accounting red flag?

a) Reporting expenses immediately

b) Capitalizing expenses to hide costs
c) Increasing salaries for employees
d) Reducing product prices for customers

(Answer: b)

5. Where can analysts find reliable financial information about a company?

a) Government-mandated financial disclosures

b) Company press releases and investor reports
c) Stock exchange filings and independent industry research
d) All of the above

(Answer: d)

1. Which of the following is NOT a key consideration in forecasting financial performance?

A) Historical financial statements

B) Industry and competitive landscape
C) Personal opinions of analysts
D) Business strategy

Correct Answer: C

2. What is the primary focus of bottom-up forecasting?

A) Industry-wide trends and macroeconomic indicators

B) External factors such as currency exchange rates
C) Individual business unit inputs and company operations
D) Market share fluctuations at a national level

Correct Answer: C

3. How does seasonality impact financial forecasting?

A) It has no impact on forecasting as companies operate year-round.

B) It affects industries differently, requiring adjustments to revenue and earnings estimates.
C) It only applies to retail businesses.
D) It makes forecasting unnecessary because financial performance is unpredictable.

Correct Answer: B

4. What is sensitivity analysis in financial forecasting?

A) A process of ignoring external factors in financial modeling.

B) A method of testing how changes in key variables impact valuation outcomes.
C) A way to ensure financial projections always remain conservative.
D) A technique that guarantees financial forecasts are always accurate.

Correct Answer: B

5. What does "illiquidity discount" refer to in valuation modeling?

A) A discount applied when a company has excess cash reserves.

B) A reduction in stock value due to the difficulty of selling large portions of shares in the
market.
C) A penalty applied to companies with high debt levels.
D) A discount given to customers who purchase products in bulk.

Correct Answer: B

QAS

1. Why is valuation important in analyzing business transactions and potential deals?

A. It helps in determining the fair deal price

B. It ensures that only profitable companies are acquired
C. It eliminates the need for negotiations
D. It increases the selling price of the target company

Answer: A.

2. Which corporate event involves a company purchasing another firm and using its assets as
collateral for debt?

A. Spin-off
B. Leveraged Buyout
C. Divestiture
D. Merger
Answer: B.

3. Why is valuation important for legal and tax purposes?

A. It determines business worth for buy-ins, dissolutions, and estate taxes

B. It prevents companies from paying taxes
C. It eliminates the need for financial audits
D. It helps businesses hide their real value from the government

Answer: A

4. Which business transaction involves two companies combining to form a new entity?

A. Spin-off
B. Divestiture
C. Acquisition
D. Merger

Answer: D

5. How does valuation support corporate finance strategies?

A. By determining the amount of funding required for day-to-day operations

B. By helping businesses manage their capital structure and maximize firm value
C. By ensuring that a company avoids taxation
D. By preventing firms from offering shares to the public

Answer: B

1. What is the fundamental principle for all investments and businesses?

A) Minimize shareholder returns

B) Maximize shareholder value
C) Maximize operational costs
D) Minimize competition

Answer: B) Maximize shareholder value

2. What is the Grossman-Stiglitz paradox?

A) Market prices always reflect intrinsic value
B) Investors won’t gather information if market prices fully reflect intrinsic value
C) Intrinsic value is irrelevant to market prices
 D) Analysts only focus on historical data

Answer: B) Investors won’t gather information if market prices fully reflect intrinsic value

3. What does liquidation value represent?**

A) The value of assets when sold together with human capital
B) The value of a business if it continues operations indefinitely
C) The value of assets if a business is dissolved and sold piecemeal
D) The fair market value agreed upon by buyers and sellers

Answer: C) The value of assets if a business is dissolved and sold piecemeal

4. Which assumption is used when determining firm value under the going concern model?
A) The business will liquidate its assets
B) The business will continue operations into the foreseeable future
C) The business will be sold at fair market value
D) The business will be dissolved immediately

Answer: B) The business will continue operations into the foreseeable future

5. What is fair market value based on?

A) A price determined by government regulations
B) A price agreed upon by a willing buyer and seller with full knowledge of the facts
C) A price that reflects liquidation value
D) A price set by the market without regard to the buyer and seller's knowledge

Answer: B) A price agreed upon by a willing buyer and seller with full knowledge of the facts
Valuation Concepts and Method

Asset Based Valuation Questionnaires

1. In Asset - Based Valuation, what do you call the concept that started from scratch?

a. Asset
b. Equity
c. Green Field Investment
d. Brown Field Investment

2. What is the correct reproduction value formula?

a. Total Assets - Total Non Current Liabilities / Number of Shares

b. Total Liabilities - Total Assets / Number of shares
c. Total Assets - Total Liabilities / Number of Shares
d. Total Current assets - Total noncurrent liabilities / Number of shares

3. This refers to the value recorded in the accounting books of a firm as reflected in the audited
financial statements.
a. Reproduction Value
b. Book Value
c. Fair Market Value
d. Earnings per share

4. When computing for the net book value of asset, which of the following items should be
deducted from Total Assets?

a. Outstanding ordinary share

b. Total long debt only
c. Total Liabilities
d. None of the above

5. What method is appropriate in valuing assets which do not have available external
information even after consulting with appraisers?
a. Book value method
b. Replacement value method
c. Reproduction value method
d. Liquidation value method

6. The use of reproduction value method is appropriate for the following except:
a. When calculating value of new technology or start-up businesses
b. Ventures with highly specialized equipment
c. Companies that are highly reliant with intangible assets
d. Businesses that use equipment supplied by third-party manufacturers

7.Statement 1: Identifying risks is unnecessary for investors when evaluating business value.
Statement 2: A company’s asset value is never linked to the cash flows it generates.
a. Both statements are True
b. Both statements are False
c. Only Statement 1 is True
d. Only Statement 2 is True

8. According to the CFA Institute, _____ is the estimation of an asset’s value based on variables
perceived to be related to future investments returns, on comparisons with similar assets, or,
when relevant, on estimates of immediate liquidation proceeds.

a. Price Estimation
b. Appraisal
c. Fundamentals
d. Valuation

9.Which key principles in valuation refers to Business value tend to change every day as
transaction happens?

a. The value of a business is defined only at a specific point in time.

b. Markets dictate the appropriate rate of return for investors.
c. Values vary based on the ability of business to generate future cash flows.
d. Firm value can be impacted by underlying net tangible assets.

10. When is the reproduction value method most useful?

a.When external information on comparable assets is readily available
b. When valuing assets of established businesses with extensive market data
c. When assessing assets with a high degree of market information
d. When calculating the value of new or start-up businesses with specialized assets

11. What are the correct steps in determining the equity value using the reproduction value
method?

1 Apply the replacement value formula using the figures calculated in the preceding step
2. Conduct reproduction costs analysis on all assets
3. Adjust the book values to reproduction costs values (similar as replacement value)

a. 1,2,3
b. 2,3,1
c. 3,2,1
d. 2,1,3

12.What is the main difference between Orderly Liquidation Value (OLV) and Forced Liquidation
Value (FLV)?
a. OLV assumes assets are sold immediately, while FLV assumes they are sold over time.
b. OLV results in lower prices than FLV due to longer sale periods.
c. OLV allows for a reasonable selling period, whereas FLV requires an immediate sale.
d. OLV is used in bankruptcy cases, while FLV is only used for real estate transactions.

13. Which of the following best describes Liquidation-Based Value (LBV)?

a. The price an asset would sell for under normal market conditions.
b. The estimated amount an asset would fetch in a forced or distressed sale.
c. The value of an asset after depreciation adjustments.
d. The highest possible price an asset could achieve in an auction.

14. The liquidation value method is based on the assumption that:

a. The company will continue operating indefinitely
b. The company will be purchased at its peak value
c. The company will be terminated or sold
d. The company's value will increase over time

15. Statement I. Market approach is another common method of valuation and is based on the
concept that the actual value of a business lies in the ability to produce revenue, profit and
eventually wealth in the future.
Statement II. The market approach uses appraisal methods that consist of a review of the
individual assets of the company.
a. Only statement I is true
b. Only Statement II is true
c. Both are true
d. Both are false

16. Statement I. Book value is the historical value of an asset on a company's balance sheet.
Statement II. Book value is referred to as an estimate of the potential value of an asset.
a. Only statement I is true
b. Only Statement II is true
c. Both are true
d. Both are false

17. Statement I. Fair value is the price at which an orderly transaction to sell an asset or to
transfer a liability would take place between market participants at the reporting date under
current market conditions.
Statement II. The resulting change in fair value that is re-measured periodically has an impact
on net income.

a. Statement I is true, Statement II is false

b. Statement II is true, statement I is false
c. Both are true
d. Both are false

18. Statement I. In order to perform a fair value measurement, an entity needs to undertake an
in-depth search of all possible markets to identify the principal market or, in the absence of a
principal market, the most advantageous market.

Statement II. Changes in the fair value of derivative instruments used as fair value hedges will
always exactly offset the change in the fair value of the asset, liability, or firm commitment being
hedged.

a. Only statement I is true

b. Only Statement II is true
c. Both are true
d. Both are false

19. What is used to estimate using the Replacement Value Method?

a. The cost of reproducing similar asset
b. The book value recorded in accounting records
c. The cost of similar assets with equivalent value
d. The liquidation value of a firm's asset

20. Statement I. Valuation methods can indeed differ between asset classes. For example,
valuing real estate typically involves different approaches (such as the comparable sales
method or income capitalization) compared to valuing a business (which might use discounted
cash flow analysis).

Statement II. According to the CFA Institute, valuation involves estimating the value of an asset
based on factors such as future returns, comparisons to similar assets, or even liquidation value
if needed.

a. Only statement I is true

b. Only Statement II is true
c. Both are true
d. Both are false

21. What is a key factor in asset-based valuation?

A) The historical growth rate of the industry
B) The ability of the asset to generate social impact
C) The value of the company's assets
D) The company's marketing strategy

22. Why is identifying risks important for investors?

A) It helps determine the impact and cost of managing risks
B) It prevents all financial losses
C) It replaces the need for business valuation
D) It ensures immediate profit generation

23. Which of the following is true about the book value method?
A.) It always accurately reflects the current economic value of the business.
B.) It provides a more transparent view on firm value and is more verifiable.
C.) It is an estimate of the cost of reproducing , creating or manufacturing of similar assets.
D.) In the book value method , the value of the enterprise is based on the book value of the
assets less ordinary share capital.

24. Which of the following is incorrect regarding the book value method?
A.) It reflects historical value.
B.) Based on what was recorded in the accounting books.
C.) Not dependent on the value of the assets as declared in the audited financial statements.
D.) All statements are correct.
25. Statement I. Earnings are measured on a cash basis rather than an accrual basis.
Statement II. Earnings Approach is behind the concept that the value of business can be
determined by reference to reasonably comparable guideline companies for which transaction
values are known.
a. Only statement I is true
b. Only Statement II is true
c. Both are true
d. Both are false

26. What is book value primarily dependent on?

(a) The company's revenue
(b) The value of assets declared in financial statements
(c) The company's market capitalization
(d) The number of employees

27 According to International Accounting Standard No., what is the purpose of the statement of
financial position?
(a) To report the company's income and expenses
(b) To summarize the total value of assets, liabilities, and equity of a firm
(c) To disclose the company's cash flow
(d) To present the company's operational activities

28. Current assets are expected to be realized within:

(a) 6 months
(b) 12 months
(c) 24 months
(d) 36 months

29. Assets where benefits can be realized in more than 12 months are known as:
(a) Current assets
(b) Liquid assets
(c) Non-current assets
(d) Intangible assets

30. Liabilities expected to be settled within 12 months are categorized as:

(a) Non-current liabilities
(b) Long-term liabilities
(c) Current liabilities
(d) Equity

31. The net book value of assets may also represents

A.) Total shareholder's equity
B.) Total long debt
C.) Total liabilities
D.) Total assets

32. Using the book value has its advantages, the following statements provide them except
A.) Information necessary for computation can be quickly gathered
B.) Validated by a third-party expert with knowledge on how much assets are sold in the open
market
C.) Shows a transparent view on firm value
D.) Can easily be validated by reviewing the company's audited financial statements.

33. Book value and replacement values of an asset are theoretically different. The difference of
these two is
A.) Book value is based on the historical acquisition costs while replacement value is based on
the net asset value as of balance sheet date
B.)
Book value can be computed from the financial statements while replacement valu
e is gathered by employing services of an appraiser
C.) Book value is computed on a per share basis, but replacement cost is shown as absolute
values
D.) Book value includes cost allowances for gaps against market prices while replacement cost
does not

34.What is the definition of replacement cost, according to the National Association of Valuators
and Analysts?
a) The original cost of an asset.
b) The depreciated value of an asset.
c) The cost of similar assets that have the nearest equivalent value as of the valuation date.
d) The market value of an asset.

35. Using the book value method, what is a limitation?

a) It provides a transparent view of firm value.
b) It is easily verifiable.
c) It only reflects historical value and may not reflect the real value of the business.
d) It always reflects the current market value of the business.

36.Which of the following is a factor that can affect the replacement value of an asset?
a) Age of the asset
b) Size of the asset
c) Competitive advantage of the asset
d) All of the above

37. Which of the following is NOT a popular method used to determine value using assets,
according to the text?
(a) Book value method.
(b) Replacement value method.
(c) Discounted cash flow method.
(d) Liquidation value method.

38 Which of the following best describes a green field investment?

(a) An investment in a fully operational business.
(b) An investment in a business that is partially operational.
(c) An investment that starts from scratch.
(d) An investment with a short-term operational period.

39. What is the primary advantage of evaluating Going Concern Business Opportunities
(GCBOs)?
(a) They rely on pure estimates.
(b) They have a long-term to infinite operational period.
(c) Their risk indicators are difficult to identify.
(d) They are always in an optimistic growth state.

40. What is a key attribute for an analyst when using asset-based valuation?
(a) Disregarding future value.
(b) Familiarity with generally accepted accounting principles.
(c) Focusing solely on current and historical value.
(d) Ignoring the financing structure.

ABC Inc. showed the following balances in its audited financial statements.

Current assets 25,000,000

Non-current assets 50,000,000
Current liabilities 12,000,000
Non current liabilities 18,000,000
Weighted average outstanding ordinary shares 2,000,000 shares

41. What is the Book value of ABC Co.?

A. 75,000,000
B. 30,000,000
C. 45,000,000
D. 40,000,000

2.What is the Book value per share?

A. ₱22.5
B. ₱20.5
C. ₱24
D. ₱22
 Valuation Concepts and Method

1. In Asset - Based Valuation, what do you call the concept that started from scratch?
a. Asset
b. Equity
c. Green Field Investment
d. Brown Field Investment

2. What is the correct reproduction value formula?

a. Total Assets - Total Noncurrent Liabilities / Number of Shares
b. Total Liabilities - Total Assets / Number of shares
c. Total Assets - Total Liabilities / Number of Shares
d. Total Current assets - Total noncurrent liabilities / Numer of shares

3. This refers to the value recorded in the accounting books of a firm as reflected in the audited
financial statements.
a. Reproduction Value
b. Book Value
c. Fair Market Value
d. Earnings per share

4. When computing for the net book value of asset, which of the following items should be
deducted from Total Assets?
a. Outstanding ordinary share
b. Total long debt only
c. Total Liabilities
d. None of the above

5. What method is appropriate in valuing assets which do not have available external
information even after consulting with appraisers?
a. Book value method
b. Replacement value method
c. Reproduction value method
d. Liquidation value method

6. The use of reproduction value method is appropriate for the following except:
a. When calculating value of new technology or start-up businesses
b. Ventures with highly specialized equipment
c. Companies that are highly reliant with intangible assets
d. Businesses that use equipment supplied by third-party manufacturers

7.Statement 1: Identifying risks is unnecessary for investors when evaluating business value.
Statement 2: A company’s asset value is never linked to the cash flows it generates.
a. Both statements are True
b. Both statements are False
c. Only Statement 1 is True
d. Only Statement 2 is True
8. According to the CFA Institute, _____ is the estimation of an asset’s value based on variables
perceived to be related to future investments returns, on comparisons with similar assets, or,
when relevant, on estimates of immediate liquidation proceeds.

a. Price Estimation
b. Appraisal
c. Fundamentals
d. Valuation

9.Which key principles in valuation refers to Business value tend to change every day as
transaction happens?
a. The value of a business is defined only at a specific point in time.
b. Markets dictates the appropriate rate of return for investors.
c. Values varies based on the ability of business to generate future cash flows.
d. Firm value can be impacted by underlying net tangible assets.

10. When is the reproduction value method most useful?

a.When external information on comparable assets is readily available
b. When valuing assets of established businesses with extensive market data
c. When assessing assets with a high degree of market information
d. When calculating the value of new or start-up businesses with specialized assets

11. What are the correct steps in determining the equity value using the reproduction value
method?

1 Apply the replacement value formula using the figures calculated in the preceding step
2. Conduct reproduction costs analysis on all assets
3. Adjust the book values to reproduction costs values (similar as replacement value)

a. 1,2,3
b. 2,3,1
c. 3,2,1
d. 2,1,3

12.What is the main difference between Orderly Liquidation Value (OLV) and Forced Liquidation
Value (FLV)?
a. OLV assumes assets are sold immediately, while FLV assumes they are sold over time.
b. OLV results in lower prices than FLV due to longer sale periods.
c. OLV allows for a reasonable selling period, whereas FLV requires an immediate sale.
d. OLV is used in bankruptcy cases, while FLV is only used for real estate transactions.

13. Which of the following best describes Liquidation-Based Value (LBV)?

a. The price an asset would sell for under normal market conditions.
b. The estimated amount an asset would fetch in a forced or distressed sale.
c. The value of an asset after depreciation adjustments.
d. The highest possible price an asset could achieve in an auction.

14. The liquidation value method is based on the assumption that:

a. The company will continue operating indefinitely
b. The company will be purchased at its peak value
c. The company will be terminated or sold
d. The company's value will increase over time

15. Statement I. Market approach is another common method of valuation and is based on the
concept that the actual value of a business lies in the ability to produce revenue, profit and
eventually wealth in the future.
Statement II. The market approach uses appraisal methods that consist of a review of the
individual assets of the company.

a. Only statement I is true

b. Only Statement II is true
c. Both are true
d. Both are false

16. Statement I. Book value is the historical value of an asset on a company's balance sheet.
Statement II. Book value is referred to as an estimate of the potential value of an asset.

a. Only statement I is true

b. Only Statement II is true
c. Both are true
d. Both are false

17. Statement I. Fair value is the price at which an orderly transaction to sell an asset or to
transfer a liability would take place between market participants at the reporting date under
current market conditions.
Statement II. The resulting change in fair value that is re-measured periodically has an impact
on net income.

a. Statement I is true, Statement II is false

b. Statement II is true, statement I is false
c. Both are true
d. Both are false

18. Statement I. In order to perform a fair value measurement, an entity needs to undertake an
in-depth search of all possible markets to identify the principal market or, in the absence of a
principal market, the most advantageous market.

Statement II. Changes in the fair value of derivative instruments used as fair value hedges will
always exactly offset the change in the fair value of the asset, liability, or firm commitment being
hedged.

a. Only statement I is true

b. Only Statement II is true
c. Both are true
d. Both are false

19. What is used to estimate using the Replacement Value Method?

The cost of reproducing similar asset

a. The book value recorded in accounting records
b. The cost of similar assets with equivalent value
c. The liquidation value of a firm's asset

20. Statement I. Valuation methods can indeed differ between asset classes. For example,
valuing real estate typically involves different approaches (such as the comparable sales
method or income capitalization) compared to valuing a business (which might use discounted
cash flow analysis).

Statement II. According to the CFA Institute, valuation involves estimating the value of an asset
based on factors such as future returns, comparisons to similar assets, or even liquidation value
if needed.

a. Only statement I is true

b. Only Statement II is true
c. Both are true
d. Both are false

21. What is a key factor in asset-based valuation?

A) The historical growth rate of the industry

B) The ability of the asset to generate social impact
C) The value of the company's assets
D) The company's marketing strategy

22. Why is identifying risks important for investors?

A) It helps determine the impact and cost of managing risks

B) It prevents all financial losses
C) It replaces the need for business valuation
D) It ensures immediate profit generation

23. Which of the following is true about the book value method?

A.) It always accurately reflects the current economic value of the business.
B.) It provides a more transparent view on firm value and is more verifiable.
C.) It is an estimate of the cost of reproducing , creating or manufacturing of similar assets.
D.) In the book value method , the value of the enterprise is based on the book value of the
assets less ordinary share capital.

24. Which of the following is incorrect regarding the book value method?

A.) It reflects historical value.

B.) Based on what was recorded in the accounting books.
C.) Not dependent on the value of the assets as declared in the audited financial statements.
D.) All statements are correct.

25. Statement I. Earnings are measured on a cash basis rather than an accrual basis.
Statement II. Earnings Approach is behind the concept that the value of business can be
determined by reference to reasonably comparable guideline companies for which transaction
values are known.

a. Only statement I is true

b. Only Statement II is true
c. Both are true
d. Both are false

26. Assets which have distinct characteristics are hard to replace. However, the characteristics
and capabilities of the distinct asset might be found in similar, separate assets. Some valuators
combine the value of the similar, separate assets that can perform the function of the distinct
asset being valued.
a. Replacement Value Method
b. Age of the asset
c. Competitive advantage of the asset
d. Book Value

27. It is important to know how old the asset is. This will enable the valuator to determine the
costs related in order to upkeep a similarly aged asset and whether assets with similar
engineering design are still available in the market.
a. Replacement Value Method
b. Age of the asset
c. Competitive advantage of the asset
d. Book Value

28. This is important for fixed assets particularly real property where assets of the similar size
will be compared. Some analysts find that the assets can produce the same volume for the
assets of the same size.
a. Book Value
b. Liquidation Value Method
c. Production Value
d. Size of the assets

29. Defined the replacement cost as the cost of similar assets that have the nearest equivalent
value as of the valuation date.

a. National Associations of Valuators and Analysts

b. International Valuation Standards Council
c. World Association of Valuation Organizations Sign
d. Security and Exchange Commission

30. The cost of similar assets that have the nearest equivalent value as of the valuation date.
 a. Based Valuation
b. Replacement cost
c. Economic Value
d. Market Cost

31. Statement 1: Current assets are those expected to be realized within the company’s normal
operating cycle, expected to be realized within 12 months after these transactions were
reported, or held primarily for the purpose of trading.
Statement 2: Cash and cash equivalents may also be included only if it is not restricted.
Which statement is correct?
a. Statement 1
b. Statement 2
c. Both statements
d. Neither Statement

32. To be reported as “cash and cash equivalent”, the cash and cash equivalent must be

a. Unrestricted in use for current operations

b. Available for the purchase of property, plant and equipment
c. Set aside for the liquidation of long-term debt
d. Deposited in the bank

33. The advantage of using this method is that it provides a more transparent view on firm value
and is more verifiable since this is based in the figures reflected in the financial statements.

a. Liquidation Value Method

b. Replacement Value Method
c. Book Value Method
d. Reproduction Value Method

34. Which key principles in valuation refers to Market forces are constantly changing, and they
normally provide guidance of what rate of return should investors expect from different
investment vehicles in the market?

a. The value of a business is defined only at a specific point in time

b. Value varies based on the ability of business to generate future cash flows
c. Firm value can be impacted by underlying net tangible assets
d. Market dictates the appropriate rate of return for investors
35. The key principles in valuation refers to general concepts for most valuation techniques put
emphasis on future cash flows except for some circumstances where value can be better
derived from asset liquidation is

a. The value of a business is defined only at a specific point in time

 b. Value varies based on the ability of business to generate future cash flows
c. Firm value can be impacted by underlying net tangible assets
d. Market dictates the appropriate rate of return for investors

36. The factor that affects the replacement value of an asset are the following except

a. Competitive advantage of the asset

b. Size of the asset
c. Original acquisition cost of the asset
d. Asset age

37. The main basis to determine the value of the insurance premium to be paid to cover the risk
for an asset is

a. Original acquisition cost

b. Replacement cost
c. Book value as of premium payment date
d. Acquisition cost less accumulated depreciation and impairment losses

38. When determining replacement costs of assets, valuators tend to consult with

a. Actuaries
b. Board of Directors
c. Appraisers
d. Equity Analysts

39.Book value and replacement values of an asset are theoretically different. The difference of
these two is

a. Book value is based on the historical acquisition costs while replacement value is based on
the net
asset value as of balance sheet date.
b. Book value can be computed from the financial statements while replacement value is
gathered by
employing services of an appraiser.
c. Book value is computed on a per share basis, but replacement cost is shown as absolute
values.
d. Book value includes cost allowances for gaps against market prices while replacement cost
does not.
40. Book value also reflects the company's

a. Historical value
b. Liquidation value
c. Intrinsic value
d. Fair market value

41. The use of reproduction value method is appropriate for the following except

a. When calculating value of new technology or start-up businesses

b. Ventures with highly specialized equipment
c. Companies that are highly reliant with intangible assets
d. Businesses that use equipment supplied by third-party manufacturer

42. Reproduction value is the

a. Estimate of cost of reproducing, creating, developing or manufacturing a similar asset
internally
b. Salvage value of the asset
c. Net value reflected in the company's financial statements
d. Cost of similar assets that have the nearest equivalent value as of the valuation date

43. What is the limitation imposed by the use of reproduction value method?
a. It considers only the original cost of the assets at the time they are acquired
b. High professional fees of appraisers
c. Difficulty in validating reasonableness of calculated value because of limited comparators
d. Inability to forecast future cash flows accurately because of uncertainties in the market

44. The following methods shows the most recent value of the firm assets in the market as of
the
valuation date, except
a. Replacement value method
b. Liquidation value method
c. Reproduction value method
d. Book value method

45. When computing for book value, which of the following items should be deducted the asset
value?
a. Total liabilities
b. Total shareholders equity
c. Long-term debt only
d. Ordinary share capita

PROBLEM SOLVING
46. Solid Pine Loggers Company, a logging company, purchased a truck for PHP 200, 000 and
the truck depreciated P15, 000 per year for 4 years, what is the net book value?

a. PHP 140, 000

 b. PHP 200, 000
c. PHP 15, 000
d. PHP 240, 000

For numbers 47 & 48:

Swift & Styles Corp. in the Year 20xx presented their statement of financial position with the
following balances:
Current Assets Php500 Million
Non-current Assets Php1 Billion
Current Liabilities Php200 Million
Non-current Liabilities Php700 Million
Outstanding shares P1 Million

47. What is the net book value of asset?

a. PHP 300 per share
b. PHP 400 per share
c. PHP 500 per share
d. PHP 600 per share

48. Supposed that it was noted that the 80% of the total noncurrent assets are cheaper by 90%
of the book value when reproduced. 20% of the total noncurrent assets are comprised of
goodwill which upon testing was proven to be valued correctly. What is Reproduction Value?
a. PHP 240 per share
b. PHP 520 per share
c. PHP 450 per share
d. PHP 420 per share

49. What is the net book value of asset per share of a mutual fund that has 25 million in current
market value, 2 million of liabilities and management fees of 100,000, if there are 5 million units
outstanding?
a. 4.58
b. 5.25
c. 5.00
d. 4.31

50. Big Trucks INC. is a company that provides car rental services. The company’s fleet is
mostly made up of big trucks for people in the construction business. The company has to
replace one of his cars because it is too old and clients don’t want to lease it anymore. The truck
was initially bought at PHP 200,000, but the current market price of a similar truck is PHP
230,000. What is the replacement cost of truck?
a. 200,000
b. 250,000
c. 230,000
d. 0
ANSWERS:
1. C
2. C
3. B
4. C
5. C
6. D
7. B
8. D
9. A
10. D
11. B
12. C
13. B
14. C
15. D
16. A
17. A
18. D
19. C
20. C.
21. C
22. A
23. B
24. C
25. D
26. c
27. b
28. d
29. a
30. b
31. c
32. a
33. c
34. d
35. b
36. c
37. b
38. c
39. b
40. a
41. d
42. a
43. c
44. d
45. a
46. a
47. d
48. b
49. d
50. c

SOLUTIONS FOR PROBLEM SOLVING

46. Accumulated Depreciation = PHP 15,000 x 4 years
= PHP60,000
Net Book Value = PHP 200,000 – PHP 60,000
Net Book Value = PHP 140,000

47. Current Assets PHP 500,000,000

Non-current Assets 1,000,000,000 Total
Assets PHP 1.500,000,000

Current Liabilities PHP 200,000,000

Non-current Liabilities 700,000,000
Total Liabilities PHP 900,000,000

NBV of Assets = PHP 1,500,000,000 – PHP 900,000,000

1,000,000 shares

NBV of Assets = PHP 600 Million

1,000,000 shares NBV

of Assets = PHP 600 shares

48. Non-current Assets PHP 1,000,000,000

% of affected item 80%
PHP 800,000,000

Non-current Assets PHP 800,000,000

Reproduction Cost Estimate 90%
% Reproduction Cost PHP 720,000,000

Non-Current Assets - Reproduction Cost PHP 720,000,000

Add: Goodwill 200,000,000
Total Non-current Assets PHP 920,000,000
Add: Current Assets 500,000,000
Total Assets PHP 1,420,000,000

Reproduction Value = PHP 1,420,000,000 – PHP 900,000,000

 1,000,000 shares
Reproduction Value = PHP 520,000,000
1,000,000 shares

Reproduction Value = PHP 520 / share

49. Net Book Value = 25,000,000 – 2,100,000

5,000,000 outstanding shares

Net Book Value = 4.58

50. In this situation, it would cost the company $23,000 to purchase a similar
asset to the one they current have in order to replace it. Thus, $23,000 is
the replacement cost of the $20,000 truck because this is how much it would
cost to buy that same truck today.
 ASSET-BASED VALUATION
Chloe

1) Harper Corporation started its operations in 2020. The company has an authorized
share capital of 100,000 shares at 50 par value. At the end of the year, Harper Corp. has
the following account balances:

Cash 1,000,000

Account Receivables 800,000

Allowance for doubtful accounts 20,000

Inventory 560,000

Equipment 1,500,000

Accumulated depreciation 40,000

Accounts payable 950,000

Accrued liabilities 170,000

Bonds payable 420,000

During the year, the company issued 40,000 shares. However, in August 2020, the company
implemented a 2-for-1 share split to make its shares more affordable in the market. What is the
net book value of the asset per share?

A. 29.75
B. 28.25
C. 59.50
D. 56.50

2) Maya Inc. has the following financial data as of January 1,2016:

Cash 1,800,000

Account Receivables 675,000

Supplies 314,000

Prepaid insurance 111,000

Equipment 2,600,000
 Accounts payable 1,000,000

Accrued liabilities 340,000

Long-term debt 860,000

The company has an outstanding share of 200,000 shares. During the year, the company
decides to issue additional 50,000 new shares at $12 each for cash. How much was the
company's net book value per share?

A. 16.50
B. 11.60
C. 16.10
D. 15.60

3) Pane company has the following balances in its financial records as of December 31,2022:

Current Assets 3,298,000

Non-current Assets 1,502,000

Current Liabilities 1,200,000

Non-current Liabilities 1,500,000

Preferred stock 450,000

The company has an outstanding common share of 70,000 shares. How much was the
company's book value per share?

A. 23.57
B. 23.37
C. 32.75
D. 33.75

4) Stone Enterprises has an authorized share capital of 200,000 shares at 30 par value. At the
beginning of the year, the company has the following data:

Current Assets 1,650,000

Non-current Assets 3,900,000

 Current Liabilities 2,180,000

Non-current Liabilities 1,320,000

The company's current assets are cash, accounts receivable and inventory. The company has
an outstanding share of 103,000. In September during the current operating year, the company
decided to buy back 15,000 shares at $20 paid in cash. What was the company’s book value
per share at the end of the year?

A. 19.90
B. 19.89
C. 23.30
D. 17.37

5) Bob's Company has the following information for 2024:

Current Assets 810,000

Non-current Assets 1,520,000

Current Liabilities 350,000

Non-current Liabilities 970,000

Preferred stock 120,000

The company has an outstanding share of 10,000 shares. During the year, the company's
current assets increased by 20% and current liabilities increased by 30%. No other payments
were made. How much was the company's book value per share as of December 31,2024?

A. 97.40
B. 115.70
C. 94.70
D. 106.70

Joshua
1) What is the primary objective of the replacement value method?
A. To determine the market value of a company
B. To estimate the cost of replacing a company's assets
C. To estimate the selling price of the asset
D. To estimate the accumulated depreciation of the asset
2) How does a company's competitive advantage affect the replacement value of its asset?
A. Increases
B. Decreases
C. No effect
D. Either Increases or decreases

3) What happens to the replacement value of an asset as it becomes obsolete due to

technological advancements?
A. Increases
B. Decreases
C. Remains the same
D. Becomes irrelevant

4) Cost of similar assets that have the nearest equivalent value as of the valuation date
A. Book value
B. Replacement cost
C. Fair market value
D. Reproduction value

5) Which of the following is one of the factors that affect the replacement value of an asset
A. Size of the company
B. Competitive advantage of the company
C. Asset age
D. Original acquisition cost of the asset

Kate

1) When is the reproduction value method used instead of the replacement cost method?

a) When the asset's market value is higher than its book value, it is difficult to determine an
accurate cost estimate.
b) When there is no external information available to determine the replacement cost
of highly specialized assets.
c) When an asset has fully depreciated over time and needs to be replaced with a new
version that reflects current market conditions.
d) When the cost of reproduction is lower than the original purchase price, leading to
potential savings in asset valuation.

2) Which of the following is not part of the asset-based valuation?

a) Book value method

b) Reproduction value method
c) Liquidation value method
 d) Replacement value method
e) None of the above

3) Which of the following is an estimate of the cost of reproducing, creating, developing, or

manufacturing a similar asset?

a) Book value
b) Liquidation value
c) Reproduction value
d) Replacement value
e) None of the above

4) What is the challenge of using the reproduction value method?

a) It is too expensive to apply in most industries.

b) It requires complex mathematical formulas that are difficult to understand.
c) There are limited sources of comparators and benchmark information to validate
the reasonableness of the calculated value.
d) It does not consider the cost of materials used in reproduction.

5) What are the steps in determining equity value using the reproduction value method?

a) Conduct a market survey, compare industry averages, and estimate asset appreciation.
b) Analyze reproduction costs, adjust book values to reproduction cost values, and
apply the replacement value formula.
c) Identify historical costs, factor in depreciation, and compare with current market trends.
d) Assess company earnings, project future revenue, and determine shareholder equity.

Jacob

Books of Zhuxin Co.

Current Ratio 1.5x

Current Assets 517,500
Noncurrent Liabilities 1,000,000
Ordinary Shares, 100 par 5,362,500
Zhuxin Co. noted that if reproduced, 70% of the noncurrent assets would be 20% cheaper than
their book value. The remaining 30% of the noncurrent assets are correctly valued.

1) How much is the book value amount of Zhuxin Co.’s current liabilities?

a) 776,250
b) 345,000
c) 772,650
d) 340,500

2) How much is the book value amount of Zhuxin Co.’s noncurrent assets?

a) 6,190,000
b) 6,621,250
c) 6,617,650
d) 6,185,500

3) How much is Zhuxin Co.’s total noncurrent assets if adjusted to its reproduction value?

a) 5,694,275
b) 5,691,179
c) 5,323,400
d) 5,319,530

4) What is the reproduction value per share of Zhuxin Co.?

a) 83.84/share
b) 90.76/share
c) 90.70/share
d) 83.77/share

5) Assuming that Zhuxin Co.’s market price is 100/share, Zhuxin Co.’s share is

a) overvalued
b) undervalued
c) valueless
d) values education

Carl
JAA 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
Weighted average of outstanding shares 120,000 shares

According to the appraisal, 60% of the non-current assets can be replaced 150% of their
reported book value while the remaining balance of the non-current assets has a
replacement value of 65%. Reported balance of other items approximates their
replacement value.

1. How much is the replacement value of JAA Company at year-end?

a. Php 584,000
b. Php 400,000
c. Php 1,784,000
d. Php 1,600,000

2. Refer to JAA Company. What is the book value per share of JAA Company?
a. Php 3.33
b. Php 4.87
c. Php 13.33
d. Php 14.87

3. Refer to JAA Company. What is the replacement value per share of JAAl Company?
a. Php 3.33
b. Php 4.87
c. Php 13.33
d. Php 14.87

As of December 31, 2024, Sakamoto 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 outstanding shares in 2020 250,000 shares
 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 a replacement cost of 125% of its reported value. On the other hand, the equipment
only commands a 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

1. How much is the non-current assets reflected in the books of Sakamoto Corporation as of
December 31, 2024?
a. Php 4,960,000
b. Php 3,850,000
c. Php 2,850,000
d. Php 2,150,000

2. How much is the book value per share of Sakamoto Corporation as of December 31,
2024?
a. Php 19.84
b. Php 16.24
c. Php 15.84
d. Php 12.24

3. How much is the replacement value of the non-current assets of Sakamoto Corporation?
a. Php 3,345,000
b. Php 3,850,000
c. Php 4,345,000
d. Php 5,455,000

4. How much is the replacement value per share of Sakamoto Corporation?

a. Php 21.82
b. Php 19.84
c. Php 14.22
d. Php 12.24

Cess

1. These are investments which are already in the going concern state, as most businesses
are in the optimistic perspective that they will grow in the future because of historical proof
of?
a. Greenfield Investments
b. Brownfield Investments
c. Cardo Dalisay
d. Both a and b
 2. Defined as the transaction that would yield future economic benefits as a result of past
transactions.
a. Asset
b. Equity
c. Net Assets
d. Shares of Stocks

3. Valuation is what type of activity in portfolio management?

a. Sensitive or Confidential
b. Sensitive only
c. Confidential only
d. Sensitive and Confidential

4. The following are characteristics of a Greenfield Investment, except:

a. Higher risk
b. Market demand uncertainty
c. Long time horizons for return on investment
d. Established market position and brand recognition

5. All of the following are methods for asset-based valuation, except:

a. Book Value Method
b. Net Asset Value Method
c. Replacement Value Method
d. Reproduction Value Method

Gaby

1. Which of the following scenarios would likely cause a company’s book value to be
significantly understated?
a. The company has recently acquired high-value intangible assets not recorded on
the balance sheet.
b. The company uses fair market valuation instead of historical cost accounting.
c. The company has consistently overstated its revenue in financial statements.
d. The company uses aggressive depreciation policies to inflate asset values.

2. If a company's book value per share is lower than its market value per share, what does
this typically indicate?
a. The company's assets are overvalued in the accounting records.
b. Investors expect strong future earnings growth.
c. The company has high levels of debt compared to its assets.
d. The company is undervalued by the stock market.
 3. Which of the following conditions would cause the book value method to fail as a reliable
valuation tool?
a. The company owns real estate that has significantly appreciated but is recorded
at historical cost.
b. The company operates in an industry with stable cash flows and tangible assets.
c. The company has a conservative depreciation policy that accurately reflects asset
wear and tear.
d. The company has a high ratio of tangible to intangible assets.

4. In which of the following industries would book value be the LEAST useful for valuation?
a. Real estate investment firms
b. Manufacturing companies with heavy machinery
c. Technology startups focusing on software development
d. Utility companies with long-term physical assets

5. What happens to a company's book value per share if it repurchases shares using
retained earnings?
a. It decreases because the number of outstanding shares increases.
b. It remains unchanged as share repurchases do not affect book value.
c. It increases because fewer shares remain outstanding.
d. It is unaffected because retained earnings are not included in book value.

Ashley

1. Identify which of the following is true

Statement 1: Asset has been defined by the industry as transactions that would
yield future economic benefits as a result of past transactions.

Statement 2: Brown field investments are easier to evaluate as information is

already available from prior years.

Statement 3: Brown field investments is the term used to describe business that
are starting from scratch

a. Statement 1 only
b. Statement 1 & 2
c. Statement 1 & 3
d. All of the above

2. Which of the following is not the benefits of having a sound Enterprise Risk Management

a. Increase the opportunities

b. Manage performance variability
 c. Make the business more resilient to abrupt changes
d. Identify or create cost-efficient financial statements

3. I. Valuation should be kept confidential to allow the company to negotiate a better position for
them to acquire an opportunity.

II. Green field investments are investments that started from scratch

a. All of the statements are true

b. Only 1 statement is true
c. All of the statements are false
d. Only 1 statement is false

4. The following are the factors that can affect the replacement value of an asset, except:

a. Age of the asset

b. Fixed asset
c. Size of the asset
d. Competitive advantage of the asset