Professional Documents
Culture Documents
Questions and Problems 2023
Questions and Problems 2023
CHAPTER 1
Overview of Corporate Valuation
Section 1.1
1. What is a business enterprise? Which characteristics of a business enterprise do we have
to pay attention to when it comes to business valuation?
2. How can we differentiate Cost, Price and Value? Give an example.
3. Analyze the definition of Value of a business enterprise and the definition of
Business/Corporate Valuation
4. Which are the determinants of (factors that have influences on) Value of a business
enterprise?
5. When do you need to value a business?
6. Why can’t maximizing profits be the ultimate goal of a particular business enterprise?
7. Is it true if we say that a good valuation provides a precise estimate of value? Why?
8. Is the date of the valuation important? Do business valuation expire?
9. How do business appraisers determine value or in other words, how many approaches
can we apply in valuing a business enterprise and what are they?
10. What information do you think is needed to perform a business valuation?
CHAPTER 2:
Financial issues associated with using discounting-based approach
I. The future value of money
1. The future value of a single cash flow
You are the lucky winner of your state’s lottery of $5 million before taxes. You invest your
winnings in a five-year certificate of deposit (CD) at a local financial institution. The CD
promises to pay 7% per year compounded annually. This institution also lets you reinvest
the interest at that rate for the duration of the CD. How much will you have at the end of
five years if your money remains invested at 7% for five years with no withdrawals and the
tax rate is 35%?
2. The future value of a single cash flow
An institution offers you the following terms for a contract: For an investment of
$2,500,000, the institution promises to pay you a lump sum six years from now at an 8%
annual interest rate. What future amount can you expect?
3. The future value of a single cash flow
A pension fund manager estimates that his corporate sponsor will make a $10 million
contribution five years from now. The rate of return on plan assets has been estimated at 9
percent per year. The pension fund manager wants to calculate the future value of this
contribution 15 years from now, which is the date at which the funds will be distributed to
retirees. What is that future value?
* What the today value of the $10 million can be received five years from now? (The
present value)
Note:
(1) i=(1+r/m)^m -1
(2) i= e^r -1 (continuous compounding, m=> ). e 2.71828….. ~~~
i= real interest rate (per year)
r= normal interest rate (per year)
m= number of interest payments in a year
According to the revaluation of all assets and liabilities, there has been some changes taking
place:
1. Some doubtful receivables of the company with the book value of 80 million VND
have been acquired by a debt trading company with the price being equal 30% of its record
value.
2. Obsolete and unserviceable raw materials inventory has a book value of 60 million
VND
3. Fixed-assets have a book value of 1300 million VND, after marking to market, this
figure is up to 1500 million VND.
4. X still has to pay the fixed assets rental payments during the next 10 years, 50 million
VND per year. In order to rent an equivalent asset at this moment, a company has to pay the
amount of 60 million VND each year. The discount rate is 20%.
5. Investing in securities of company B: (2000 stocks) book value is 200 million VND.
At the time of revaluing, the price of a B’s stock in the Stock Exchange is 95000 VND.
6. Company’s capital in partnership business is recorded as 400 million VND, after
being revalued, it goes up by 50 million VND
7. After collecting the profiles, X has already obtained all the documents proving that
some liabilities at the time of valuation will no longer be accounted for and those liabilities
have a book value of 100 million VND
Determining the value of company X.
Problem 2:
Company X has the following document: A summarized Balance Sheet at 31/12/N
Currency unit: million VND
Assets Book value Sources of financing Book value
• According to the revaluation of all assets and liabilities, there has been some changes
taking place:
1. Some receivables that are not be able to collect have a book value of 40 million VND
while some doubtful receivables with the book value of 60 million VND have been acquired
by a debt trading company with the price being equal to 30% of its recorded value.
2. Obsolete and unserviceable raw materials inventory has a book value of 30 million
VND
3. Fixed-assets have a book value of 1200 million VND, after marking to market, this
figure is up to 1350 million VND.
4. X still has to pay the fixed assets rental payments during the next 10 years, 20 million
VND per year. In order to rent an equivalent asset at this moment, a company has to pay the
amount of 25 million VND each year. The discount rate is 10%.
5. Investing in securities of company B: (3000 stocks) book value is 300 million VND.
At the time of revaluing, the price of a B’s stock in the Stock Exchange is 125000 VND.
6. Company’s capital in partnership business, after being revalued, goes up by 20
million VND
7. According to the lease agreement in which company X is the lessor, the lease
(Company C) still has to pay during the next 20 years, 10 million VND per year. Residual
value of the leased asset on the balance sheet is 180 million VND. The discount rate is 10%.
Terminal value of the leased asset at the end of year 20 is not significant.
Determining the value of company X
Problem 3:
A business enterprise has the following document:
A. Total assets have a book value of 4500 million VND. However, after being marked
to market, there are some changes taking place:
1. Receivables:
- Some receivables that cannot be collected because the debtor has already been pushed into
default have a book value of 100 million VND.
- Some doubtful receivables with a book value of 240 million VND have been acquired by a
debt trading company with the maximum price of 140 million VND.
- Company X may be able to collect 80% of a receivable with the recorded value of 160
million VND.
2. Inventory:
- Obsolete and unserviceable raw materials: 80 million VND
- Inventory of Product A has been revalued upwards by 180 million VND
- Inventory of Product B: obsolete and unserviceable items have a book value of 360 million
VND.
3. Tangible fixed assets are revalued upwards by 300 million VND
4. Intangible fixed assets are revalued downwards by 60 million VND
5. Long-term investment, after being revalued, has an increase of 120 million VND in value.
B. Sources of financing:
1. Liabilities have a book value of 2700 million VND. Some Payables that are no longer be
accounted for have a recorded value of 300 million VND.
2. Owner’s Equity has a recorded value of 1800 million VND.
Determining the value of company X.
Problem 4:
Company X has a summarized Balance Sheet at 31/12/N
Currency Unit: million VND
Assets Book value Sources of financing Book value
Current Assets 1000 Liabilities 1200
Non-current Assets 1700 Owner’s Equity 1500
Total Assets 2700 Liabilities+ Owner’s Equity 2700
Determining the value of company X, knowing that according to the revaluation of all
assets and liabilities, there has been some changes taking place:
1. Company X has an amount of 15.000 USD that was recorded on the balance sheet at
280 million VND. At the time of revaluation, the exchange rate of USD/VND is 20.000.
2. According to the lease agreement in which company X is the lessor, the leasee
(Company C) still has to pay during the next 5 years, 20 million VND per year. In order to
rent an equivalent asset at this moment, a leasee has to pay the amount of 30 million VND
each year. The discount rate is 15%.
3. Company’s capital in partnership business, after being revalued, goes up by 50
million VND
4. After collecting the profiles, X has already obtained all the documents proving that
some liabilities at the time of valuation will no longer be accounted for and those liabilities
have a book value of 100 million VND
Problem 5:
Company X has a summarized balance sheet at 31/12/N
Currency unit: million VND
Assets Book value Sources of financing Book value
According to the revaluation of all assets and liabilities, there has been some changes taking
place:
1. Some doubtful receivables of the company with the book value of 80 million VND have
been acquired by a debt trading company with the price being equal 30% of its record value.
2. Obsolete and unserviceable raw materials inventory has a book value of 60 million VND
3. Fixed-assets have a book value of 1300 million VND, after marking to market, this figure
is up to 1500 million VND.
4. X still has to pay the fixed assets rental payments during the next 10 years, 50 million
VND per year. In order to rent an equivalent asset at this moment, a company only has to
pay the amount of 40 million VND each year. The discount rate is 15%.
5. Investing in securities of company B: (2000 stocks) book value is 200 million VND. At
the time of revaluing, the price of a B’s stock in the Stock Exchange is 95000 VND.
6. Company’s capital in partnership business is recorded as 400 million VND, after being
revalued, it goes up by 50 million VND.
7. After collecting the profiles, X has already obtained all the documents proving that some
liabilities at the time of valuation will no longer be accounted for and those liabilities have a
book value of 100 million VND
Determining the value of company X
Problem 6:
Company X has a summarized balance sheet at 31/12/N
Currency unit: million VND
Assets 1/1 31/12 Sources of financing 1/1 31/12
Problem 7:
Determining the value of Company X based on the following information:
- Net asset value of Company X at the time of valuation is 150 billion VND
- Net income at the time of valuation is recalculated as an average of net income in the last 3
years and ends up with an amount of 35 billion VND. Net income is expected to increase
10% per year in the next 3 years.
- Net asset value is expected to annually increase 6% per year
- An average returns on equity ratio of comparable companies in the industry is 13%. Yield
on Treasury bond is 12%, equity risk premium on the securities market is 4%.
Problem 8:
Company X has a summarized Balance Sheet at 31/12/N
Currency Unit: million VND
Assets Book value Sources of financing Book value
Current Assets 1000 Liabilities 1300
Non-current Assets 1700 Owner’s Equity 1400
Total Assets 2700 Liabilities+ Owner’s Equity 2700
According to the revaluation of all assets and liabilities, there has been some changes taking
place:
1. Company X has an amount of 15.000 USD that was recorded on the balance sheet at 270
million VND. At the time of revaluation, the exchange rate of USD/VND is 20.000.
2. According to the lease agreement in which company X is the lessor, the lease (Company
C) still has to pay during the next 5 years, 20 million VND per year. In order to rent an
equivalent asset at this moment, a lease has to pay the amount of 30 million VND each year.
The discount rate is 10%.
3. Company’s capital in partnership business, after being revalued, goes up by 50 mil VND
4. After collecting the profiles, X has already obtained all the documents proving that some
liabilities at the time of valuation will no longer be accounted for and those liabilities have a
book value of 100 million VND.
Determining the value of company X, if:
- ROE (earnings after tax) is 20%, Owner’s equity at 1/1/N is 1300 million VND
- In the next 2 years, net income and NAV are expected to increase 10% and 5% each
year equivalently. After that, ROA of the company X will be equal to the average ratio of all
comparable firms in the industry.
- Discount rate is 15%/year
- The average ROE of companies with similar operating conditions is 14%.
Problem 09:
Company X has a summarized balance sheet at 31/12/N
Currency unit: million VND
Assets 1/1 31/12 Sources of financing 1/1 31/12
Problem 10:
A business enterprise has the following document:
A. Total assets have a book value of 8,000 million VND. However, after being revalued,
there are some changes taking place:
1. Receivables:
- Some receivables that cannot be collected because the debtor has already been pushed into
default have a book value of 100 million VND.
- Some doubtful receivables with a book value of 320 million VND have been acquired by a
debt trading company with the maximum price of 140 million VND.
- Company X may be able to collect 70% of a receivable with the recorded value of 240
million VND.
2. Inventory:
- Obsolete and unserviceable raw materials: 180 million VND
- Inventory of Product A has been revalued upwards by 130 million VND
- Inventory of Product B: obsolete and unserviceable items have a book value of 330 million
VND.
3. Tangible fixed assets are revalued upwards by 300 million VND;
4. According to the lease agreement in which company X is the lessor, the lease (Company
C) still has to pay during the next 8 years, 30 million VND per year. In order to rent an
equivalent asset at this moment, a lease has to pay the amount of 45 million VND each year.
5. Investing in securities of company B: (4,000 stocks) book value is 330 million VND. At
the time of revaluing, the price of a B’s stock in the Stock Exchange is 125000 VND.
6. Intangible fixed assets are revalued upwards by 160 million VND
7. Long-term investment, after being revalued, has an increase of 150 million VND in
value.
B. Sources of financing:
1. Liabilities have a book value of 3,500 million VND. Some Payables that are no longer be
accounted for have a recorded value of 300 million VND.
2. Owner’s Equity has a recorded value of 4,500 million VND.
Determining the value of Company X based on the following information:
- Net income at the time of valuation is recalculated as an average of net income in the last 3
years and ends up with an amount of 850 million VND. Net income is expected to increase
12% per year in the next 3 years.
- Net asset value is expected to annually increase 8% per year
- An average returns on equity ratio of comparable companies in the industry is 14%. Yield
on Treasury bond is 12%, equity risk premium on the securities market is 3%.
Problem 11:
According to the revaluation of all assets and liabilities, there has been some changes taking
place:
1. Receivables:
- Some receivables that cannot be collected because the debtor has already been pushed into
default have a book value of 120 million VND.
- Some doubtful receivables with a book value of 350 million VND have been acquired by a
debt trading company with the maximum price of 180 million VND.
- Company X may be able to collect 65% of a receivable with the recorded value of 280
million VND.
2. Inventory:
- Obsolete and unserviceable raw materials: 150 million VND
- Inventory of Product A has been revalued upwards by 120 million VND
- Inventory of Product B: obsolete and unserviceable items have a book value of 330 million
VND.
3. Company X has an amount of 18.000 USD that was recorded on the balance sheet at 330
million VND. At the time of revaluation, the exchange rate of USD/VND is 20.000.
4. According to the lease agreement in which company X is the lessor, the lease (Company
C) still has to pay during the next 5 years, 20 million VND per year. In order to rent an
equivalent asset at this moment, a lease has to pay the amount of 30 million VND each year.
5. Company’s capital in partnership business, after being revalued, goes down by 80 million
VND
6. After collecting the profiles, X has already obtained all the documents proving that some
liabilities at the time of valuation will no longer be accounted for and those liabilities have a
book value of 130 million VND
Determining the value of company X, if:
- ROE (earnings after tax) is 20%, Owner’s equity at 1/1/N is 2500 million VND
- In the next 3 years, net income and NAV are expected to increase 10% and 5% each
year equivalently. After that, ROA of the company X will be equal to the average ratio of all
comparable firms in the industry.
- Discount rate is 15%/year
- The average ROE of companies with similar operating conditions is 14%.
Problem 12:
Company X has a summarized balance sheet at 31/12/N
Currency unit: million VND
Assets 1/1 31/12 Sources of financing 1/1 31/12
Problem 2:
Company ABC has a summarized income statement as follows: (Year N)
1. Net income 1000
2. Dividend 500
3. Retained earnings 500
4. Dividend per share 0.05
Assume that global financial markets are running well and stable, the average opportunity
cost of capital on the market is 15% per year. Determine the most appropriate transaction
price in the acquisition of ABC when:
1. ABC follows the payout policy of keeping dividend unchanged over years. ABC
issued common stocks only.
2. ABC commits to pay dividends with the constant growth rate of 3% each year.
Problem 3:
A company that majors in manufacturing consumer good has been in good condition with
the following financial data:
• Net income: 100.000 USD
• Dividend payout ratio is 60%, which is expected to be unchanged in the future
• The expected ROE is 12%
• Risk-free rate is 7%. Market risk premium is 3%. β is 1,2
Determine the value of company.
Problem 4:
Company ABC that majors in manufacturing consumer good has been in good condition
with the following financial data:
• Net income in Year N is 100.000 USD
• Dividend payout ratio is 60%
• ROE in Year N is 20%, which is assumed to be constant in the significantly growing
period.
• ABC has a beta of 1,2; risk-free rate is 5%, market risk premium is 4%.
• Assume that ABC keeps growing strongly in the next 4 years, then enters into a more
stable period with a growth rate being equal to the growth rate of the economy at 5%. In the
second period, it is expected that: ß = 1.
Determine the value of ABC.
Problem 5:
Company ABC that majors in manufacturing consumer good has been in good condition
with the following financial data:
• Net income in Year N is 100.000 USD
• Dividend payout ratio is 60%
• ROE in Year N is 20%, which is assumed to be constant in the significantly growing
period.
• ABC has a beta of 1,2; risk-free rate is 5%, market risk premium is 4%.
• Assume that ABC keeps growing strongly in the next 4 years, then enters into a more
stable period with a growth rate being equal to the growth rate of the economy at 5%.
• In the second period, it is expected that: ß = 1; ROE’=16.67%
Determine the value of ABC.
Problem 6:
Company T that majors in manufacturing consumer good has been in good condition with
the following financial data:
• Net income in Year N is 200.000 USD
• Dividend payout ratio is 55%
• ROE in Year N is 20%, which is assumed to be constant in the significantly growing
period.
• Company T has a beta of 1,2; risk-free rate is 6%, market risk premium is 4%.
• Assume that Company T keeps growing strongly in the next 5 years, then enters into
a more stable period with a growth rate being equal to the growth rate of the economy at
4%. In the second period, it is expected that: ß = 1.
Determine the value of Company T.
Problem 7:
Company T that majors in manufacturing consumer good has been in good condition with
the following financial data:
• Net income in Year N is 200.000 USD
• Dividend payout ratio is 55%
• ROE in Year N is 20%, which is assumed to be constant in the significantly growing
period.
• Company T has a beta of 1,2; risk-free rate is 6%, market risk premium is 4%.
• Assume that Company T keeps growing strongly in the next 5 years, then enters into
a more stable period with a growth rate being equal to the growth rate of the economy at
4%. In the second period, it is expected that: ß = 1, ROE’= 25%
Determine the value of Company T.
Problem 8:
FCFF of company X is expected to be 2 billion VND in the next year. 10 year treasury bond
has a yield of 10%, Returns on market index is 17%, beta of X is 1,3. The average cost of
debt is 10%.
Owner’s Equity: 30 billion VND Debt: 10 billion VND
FCFF is expected to grow at a constant rate of 6% per year.
Determine the value of X knowing that corporate income tax is 20%.
Problem 9: Company X has the following data:
• Net income: 150 million USD
• Fixed capital investment: 100 million USD
• Depreciation: 50 million USD
• Working capital investment: 50 million USD
• Net borrowing (the difference between new principal (debt) issuing and old principal
(debt) paid out): 15 million USD
• According to the 5-year plan, net income, fixed capital investment, working capital
investment, depreciation and net borrowing are expected to grow at 10% per year.
Determine the value of X:
a, based on FCFE discount model? After the first 5 years, X grows constantly at the rate of
5% per year. Required rate of returns on equity is 12% per year.
b, based on FCFF discount model? Current interest expense is 80 million USD with the rate
of 10% per year. In the first 5 years, FCFF is expected to grow at 10% per year. After that,
X plans to keep FCFF unchanged, cost of debt in the 6 year is the same as that of the
th
5 year. Required rate of returns on equity after first 5 years reaches 12% per year. Optimal
th