Income Based Valuation Approach

A Co. projected earnings to be Php 120 Million per year. The board of directors decided to sell the company for Php 500 million with a cost of capital appropriate for this type of business at 12%. Given the foregoing, the EVA is computed as;

• Php 50,000,000

• Php 32,000,000

• Php 60,000,000

• Php 65,000,000

Tags

Economic Value Added

It is the amount of money that the company or the assets will generate over the period of time.

Statement 1: The general concept of Economic Value Added is that HIGHER excess earnings is BETTER for the firm.

Statement 2: Economic Value Added is the MOST conventional way to determine the value of the asset

• Only Statement 1 is True

• Only Statement 2 is True

• Both Statements are False

• Both Statements are True

The following are the elements considered in using Economic Value Added, except;

• Reasonableness of earnings

• Appropriate Cost of Capital

• Professional Skepticism

• None of the above

A valuation approach that 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.

• Income Based Valuation Approach

• Market Based Valuation Approach

• Asset Based Valuation Approach

• Benefit Received Valuation Approach

Also known as dividend relevance theory. It believes that dividend or capital gains has an impact on the price of the stock

• BIrd-in-the-Hand Theory

• Capitalization Theory

• Capital Gain Theory

• Divident Matter Theory

The cost of financing the business operations through Equity

• Cost of Equity

• Cost of Debt

• Cost of Capital

• WACC

It refers to the cost incurred by the firm to raise capital through both Equity and Debt for the business.

• Cost of Equity Financing

• Cost of Debt Financing

• Cost of Capital

• None of these

Given the following;

Debt financing - 200,000

Equity Financing - 500,000

Compute for the weight percentage of equity financing

• 71%

• 72%

• 70%

• 73%