Illustrative Example 1

Pavement Company reported below balances based on its accounting books.

Pavement company has P250,000 outstanding shares.

Assets
Cash
Accounts Receivable - Net
Inventories
Prepaid expenses
Property, Plant and Equipment - Net
Total Assets

Liabilities
Notes Payable
Other Liabilities
Total Liabilites

Pavement Company is undergoing financial problems and management would like to

assess liquidation value as part of their strategy formulation. If assets will be
sold/realized, they will only realize amount based on below table.
Assets
Cash
Accounts Receivable - Net
Inventories
Prepaid expenses
Property, Plant and Equipment - Net
d on its accounting books.
es.
Solution:

Assets
100,000.00 Cash
800,000.00 Accounts Receivable - Net
3,500,000.00 Inventories
100,000.00 Prepaid expenses
4,500,000.00 Property, Plant and Equipment - Net
9,000,000.00
Assets Adjusted Value:
Less: Liabilities to be settled
1,200,000.00 Liquidation Value - Pavement Company
800,000.00 Number of Outsanding Shares
2,000,000.00 Liquidation Value per Share

ms and management would like to

mulation. If assets will be
n below table.
Realizable Value
100%
85%
60%
25%
60%
 Realizable
Book Value Value Adjusted Value
100,000.00 100% 100,000.00
800,000.00 85% 680,000.00
3,500,000.00 60% 2,100,000.00
100,000.00 25% 25,000.00
4,500,000.00 60% 2,700,000.00

5,605,000.00
2,000,000.00
Company 3,605,000.00
250,000
14.42
Illustrative Example 2

Golda Company, which is a company specifically created for a joint venture agreement to
extract gold, will end its corporate life in 3 years. Net Cash flow expected during the years
it still operate is at P3,000,000 per year. At the end of its life, Golda estimates to incur
P10,000,000 for closure and rehabilitation costs for its mining site and other costs related
to the liquidation process. Cost of capital is set at 10%. Remaining assets by end of the
corporate life will be bought by another company for P30,000,000 and remaining debt of
P4,000,000 will be full paid off by then. If the valuation happens now, compute for the
value of Golda Company.

PV of Cash inflows during the years of operation

Cash Flow PV Factor
PV of Net Cash flow Year 1 3,000,000.00 0.90909090909
PV of Net Cash flow Year 2 3,000,000.00 0.82644628099
PV of Net Cash flow Year 3 3,000,000.00 0.7513148009
PV of Cash inflows during the years of operation

Solution:
PV of Sale of Asset 30,000,000.00 0.7513148
Less: PV of Cost for termination - 10,000,000.00 0.7513148
Less: PV of settlement of liabilities - 4,000,000.00 0.7513148
Liquidation Value

Value of Golda Company = PV of Cash inflows during the year in Operation + Liquida
Value of Golda Company = 7,460,555.97 +
Value of Golda Company = 19,481,592.79
outstanding shares 1,000,000.00
Value of Golda Company per share 19.48
a joint venture agreement to
ow expected during the years
Golda estimates to incur
g site and other costs related
aining assets by end of the
0,000 and remaining debt of
ens now, compute for the

PV
2,727,272.73
2,479,338.84
2,253,944.40
7,460,555.97

22,539,444.03
- 7,513,148.01
- 3,005,259.20
12,021,036.81

the year in Operation + Liquidation Value

12,021,036.81