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Valuation

The document discusses various valuation methods and principles, including intrinsic value, fair market value, and replacement value, along with their applications and limitations. It also covers financial statement analysis, book value calculations, and the implications of liquidation value in business contexts. Additionally, it addresses true or false statements regarding valuation concepts and practices.

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Mayeth Valencia
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9 views

Valuation

The document discusses various valuation methods and principles, including intrinsic value, fair market value, and replacement value, along with their applications and limitations. It also covers financial statement analysis, book value calculations, and the implications of liquidation value in business contexts. Additionally, it addresses true or false statements regarding valuation concepts and practices.

Uploaded by

Mayeth Valencia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1. Statement I: Intrinsic value is often 5.

Statement I: Replacement Value


used in valuation exercises involving Method is useful when calculating
tax assessments. the value of new or start-up
Statement II: Fair market value is a businesses, ventures that specialized
price at which property would equipment or assets, firms that are
change hands between a hypothetical heavily dependent on intangible
willing and able buyer and a buyer assets and those with limited market
and a hypothetical willing and able information.
seller, acting at arm’s length in an Statement II: One of the
open and unrestricted market, when disadvantages of the replacement
either is under compulsion to buy or value method is that the value
sell and when both reasonable calculated does not have the ability
knowledge of the relevant facts. to provide its reasonableness since
there are only limited sources of
Answer: B. Statement I and II are comparators and benchmark
false information it can be used.

2. What key principles in valuation is Answer: B. Statement I and II are


mainly dictated by the theory of false
demand and supply?
6.-7. AMSB Inc. showed the
Answer: D. Valuation is impacted
following in its balances in its
by liquidity
audited financial statements: (4pts in
3. It pertains to detailed review of total)
financial statements and
accompanying notes to assess Current Assets
sustainability of company 5,000,000
performance and validate accuracy Non Current Assets
of financial information versus 9,000,000
economic reality. Current Liabilities
4,500,000
Answer: D. Quality of Earning’s Non Current Liabilities
Analysis 6,000,000
4. Statement I: In the book value Weighted average outstanding
method, the value of the enterprise is ordinary shares 40,000
based on the book value of the assets shares
less all non-equity claims against it.
Statement II: One of the Compute for the following:
disadvantages of the book value
method is that it does not provide a 6. Book value of AMSB Inc.- (2pts
more transparent view on firm value. each)

Answer: Only Statement I is true Answer: 3,500,000


11. Book value per share as December 31, 2024
7. Book value per share. - (2 pts each) Answer: BV 445 M/ 230,000,000 = 1.93 per share
Answer: 87.5

12. Under this method, the value of the


8. - 11. The balance of JAZZ Company individual assets shall be adjusted to reflect
as of December 31 is presented: (2 the relative value or cost equivalent to
pts each) replace the asset.
2023 2024 Answer: A. Replacement Value Method
Cash 50,000,000 65,000,000
Marketable 70,000,000 90,000,000 13. Statement I: Book value method will not
Securities
Accounts 70,000,000 85,00,000
result to overage or understatement of value
Receivable of the net assets recorded in the books.
(net)
Inventory 80,000,000 105,000,000 Statement II: Selecting the right valuation
PPE (net) 305,000,000 285,000,000 model is the 4th step in valuation process.
Total Assets 575,000,000 630,000,000
Answer: C. Statement I and II are false
Liability &
Shareholder’s 14. An analyst gathers the following
Equity information about a company:
Accounts 40,000,000 50,000,000
Payable Solution (based on the data hehe)
Short term 55,000,000 55,000,000
notes payable Cash 5k
Bonds payable 90,000,000 80,000,000 AR 15k x 90% = 13,500
Ordinary 205,000,000 230,000,000
shares Invty 25k x 90% = 22,500
Retained 185,000,000 215,000,000
earnings Net fixed assets 80k x 120% = 96,000
Total 575,000,000 630,000,000
TOTAL ASSETS: 137,000
Liability &
Shareholder’s Accounts Payable 10k
Equity
NP 15k
Ordinary shares have par value of MV of long term debt 45k
P1.00 per share. In April 1, 2024, the JAZZ
Company issued additional shares as part of TOTAL LIAB: 70,000
its funding plan.

8. Book value as of December 31, 2023 (137k – 70k = 67k book value)
Answer: Total assets 575 M - Liab 185 M = 390 M BV 67k / 7k outstanding shares = 9.57 bv per
9. Book value per share as December 31, 2023 share

Answer: BV 390 M/ OS 205 M = 1.90 per share

10. Book value as of December 31, 2024 Using the information above, what is the
company’s value per share?
Answer: Total assets 630 M – Liab 185 M = 445 M
Answer: B. 9.57 20. In practice, the liabilities of the business
are added from the liquidation value of the
assets at closure to determine the liquidation
value of the business. The overall value of a
business that uses this method should be
lower than going-concern value. FALSE
15. Intrinsic value is the value that an 21. Assets are sold strategically over an
investor considers “true” or “real” value that orderly period to attract and generate the
will become the market value when other most money for the assets. This is called
investors reach the same conclusions. forced liquidation. FALSE
Therefore, intrinsic value always equal
market price. 22. Orderly liquidation is the liquidation
process at which the asset or assets are sold
Answer: C. Statement above is false as quickly as possible, such as at an auction.
because intrinsic value is not always equal FALSE
to market value
23. Because liquidation value is lower than
16. Businesses uses valuation in estimation market price of share, these corporate
of the price they are going to offer to fetch investors buy the shares at prevailing market
in the stock market for the additional funds price and sell the company at the higher
they needed. This is one of the roles of liquidation value. This results in risk-free
valuation which is related to: arbitrage profit for these corporate investors.
Answer: D. Corporate Finance FALSE

17. It is one of the valuation process that 24. For analysts, liquidation value method
give analysts and investors the idea about can also be used as benchmark in making
economic conditions, industry peculiarities, investment decisions. TRUE
company strategy and company’s historical 25. Insolvency happens when a company
performance. cannot pay liabilities as they come due.
Answer: B. Understanding the Business TRUE

18. Consideration of sensitivity analysis and 26. External factors such as severe economic
scenario modeling is used when: downturn, occurrence of natural calamities
or pandemic, changing consumer
Answer: D. None of the above preferences and adverse governmental
regulations may also contribute to business
failure. TRUE
TRUE OR FALSE
27. If corporate end of life is already certain,
19. Estimation of liquidation values will be it is more appropriate to compute terminal
more complex if assets can be easily value using going concern value. FALSE
identified or separated; hence individual
valuation may be impractical. FALSE 28. Divestment can be driven by different
internal factors such as mismanagement,
poor financial evaluation and decisions,
failure to execute strategic plans, inadequate
cash flow planning or failure to manage
working capital. FALSE
29. Liquidation value is the most appropriate
valuation among all as it considers the
realizable value of the asset if it is sold now
based on current conditions. FALSE
30. If the nature of the business implies
limited lifetime (e.g.fixed term company,
gravel company), the terminal value must be
based on liquidation. All costs necessary to
close the operations (e.g. plant closure costs,
disposal costs,) should also be factored in
and deducted to arrive at the liquidation
value. TRUE

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