Excess Earnings Method - Business Valuation

Excess Earnings Method - Business Valuation

Assessment

Interactive Video

Business

University

Hard

Created by

Quizizz Content

FREE Resource

The video explains an approach to valuing a business by combining asset-based valuation with projected cash flows from intangible assets. It details how to estimate returns from tangible and intangible assets, using capitalization rates to determine their value. The excess earnings method is highlighted, particularly for startups reliant on intellectual property. An alternative approach using normalized returns is also discussed.

Read more

5 questions

Show all answers

1.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the primary focus of the initial approach discussed in the video?

Valuing only intellectual property

Ignoring intangible assets

Focusing solely on tangible assets

Combining tangible and intangible assets

2.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

How is the value of tangible assets determined according to the video?

By assessing historical costs

By dividing expected earnings by a discount rate

By calculating the market value

By estimating future cash flows

3.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the role of the capitalization rate in valuing tangible assets?

It is used to assess historical costs

It is irrelevant to the valuation process

It is used to calculate the expected return

It determines the market value

4.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What does the alternative approach to valuation focus on?

Historical costs

Normalized returns

Market trends

Future cash flows

5.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Why is the excess earnings method particularly useful for startups?

Because they have a long history of earnings

Because they focus on market trends

Because they rely heavily on intellectual property

Because they have significant tangible assets