Valuation Concepts and Methodologies Final Exam

Statement I: Value is impacted by solvency.

Statement II: Value is influenced by transferability of future cash flows.

• Statement I is true, Statement II is false.

• Statement I is false, Statement II is true.

• Both statements are true.

• Both statements are false.

This has been defined by the industry as transactions that would yield future economic benefits as a result of past transactions.

• Asset

• Equity

• Net Assets

• Shares of Stocks

This represents the net amount that can be gathered if the business is shut down and its assets are sold piecemeal.

• Going Concern Value

• Liquidation Value

• Bankruptcy Value

• Closing Value

Which of the following is not a source of public information of the publicly listed companies?

• Securities and Exchange Commission

• Philippine Dealings and Exchange Corporation.

• Philippine Stock Exchange

• Government Official Gazette.

Statement I: Uncertainty is captured in valuation models through cost of capital or discount rate.

Statement II: The definition of value may also vary depending on the context and objective of the valuation exercise. It includes intrinsic value, going concern value, liquidation value and fair market value.

• Statement I is true, Statement II is false.

• Statement I is false, Statement II is true.

• Both statements are true.

• Both statements are false.

The following describes the benefits of having a sound Enterprise-wide Risk Management system except

• Facilitates elimination of all business risks

• Manage performance variability

• Enhance business resilience against changes

• Improve distribution of resource across the firm

Which of the following is not correct related to liquidation value?

• If the liquidation value is below income approach valuation (based on going-concern principle) and liquidation comes into consideration, liquidation value should be used.

• If the nature of the business implies limited lifetime (e.g. a quarry, gravel, fixed-term company etc.), the terminal value must be based on liquidation. All costs necessary to close the operations (e.g. plant closure costs, disposal costs, rehabilitation costs) should also be factored in and deducted to arrive at the liquidation value.

• Non-operating assets should be valued by liquidation method as the market value reduced by costs of sale and taxes. Since they are not part of the firm's operating activities, it might be inappropriate to use the same going concern valuation technique used for business operations. If such result is higher than net present value of cash-flows from operating the asset, the liquidation value should be used.

• Liquidation valuation must be used if the business continuity is dependent on current management that will not stay.

The following are Hard Due Diligence activities, except:

• Reviewing and auditing financial statements.

• Scrutinizing projections for future performance.

• Evaluation of targeted workforce how well it will mesh with the acquiring corporation’s culture.

• Reviewing potential or ongoing litigation

Statement I: Valuation includes the use of forecasts to come up with reasonable estimate of value of an entity's assets or its liability.

Statement II: Valuation techniques may differ across different assets, and all follow different fundamental principles that drive the core of these approaches.

• Statement I is true, Statement II is false.

• Statement I is false, Statement II is true.

• Both statements are true.

• Both statements are false.

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

• Book value is based on the historical acquisition costs while replacement value is based on the net asset value as of balance sheet date.

• Book value can be computed from the financial statements while replacement value is gathered by employing services of an appraiser.

• Book value is computed on a per share basis, but replacement cost is shown as absolute values.

• Book value includes cost allowances for gaps against market prices while replacement cost does not.