VALUATION CONCEPTS AND METHODOLOGIES MULTIPLE CHOICE THEORIES. Write the letter of the best answer before the number of the question or statement being answered. 1. Avaluation 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. a. Income Based Valuation Approach b. Market Based Valuation Approach c. Asset Based Valuation Approach d. Liquidation Valuation Approach 2. The following methods are NOT income-based valuation technique except a. Economic Value Added, Capitalizing current eamings and discounted future earnings -b. Economic Value Added, Capitalization of earnings method and discounted cashflow method c. Economic Value Added, Capitalizing past earnings and discounted cashflow approach d. Economic Value Added, Discounted Cashflow and Revenue Approach 3. Valuation approach that determines the equity value by calculating the present value of the expected future net cash flows or profits Revenue Approach Discounted Cashflows Method Approach Capitalization of Earnings Approach Economic Value Added aoon 4. A valuation method used to estimate a firm's worth based on earnings forecasts. It uses these forecasts for the earnings of a firm and the firm's estimated terminal value at a future date, and discounts these back to the present using an appropriate discount rate. . Revenue Approach . Discounted Cashflows Analysis Capitalization of Earnings Approach Economic Value Added aoclel [soles AND © 1 S The following are ways on to estimate terminal value except Liquidation Value Model Multiples Approach Stable Growth Approach Going Concern Model apo In Income based valuation, investors consider two opposing theories a. dividend relevance theory and bird-in-hand theory b. bird-in-hand theory c. dividend irrelevance theory d. both bandc The. theory was introduced by Modigliani and Miller that supports the belief that the stock prices are not affected by dividends or the returns on the stock but more on the ability and sustainability of the asset or company. a. dividend relevance theory b. bird-in-hand theory c. dividend irrelevance theory d. both b andc The theory believes that dividend or capital gains has an impact on the price of the stock. a. dividend relevance theory b. bird-on-hand theory c. dividend irrelevance theory d. both aandb . The is also known as Income based valuation approach a. earings approach b. market approach ¢. asset-based approach d. going concem approach In sensitivity analysis, this factor is the additional value inputted in the calculation that would account for the increase in value of the firm due fo other quantifiable attributes like potential growth, increase in prices, and even operating efficiencies. a. earning accretion Ee eo |12. 13. 14. 16. :THODOLOGIES ig increments d. earning decrements . In sensitivity analysis, this factor will reduce value if there future circumstances that will affect the firm negatively. a. earning accretion b. earning dilution c. earning increments d. earning decrements . This is the amount that is added to the value of the firm in order to gain contro! of it. a. equity accretion b. earnings premium c. equity control premium d. additional paid in capital These are the factors that can be considered to properly value the asset using income based valuation approach, except a. earning accretion or dilution b. equity accretion or dilution ¢. equity control premium d. precedent transaction Using the income based valuation, these are previous deals or experiences that can be similar with the investment being evaluated. a. earning accretion or dilution b. equity accretion or dilution ¢. equity control premium d. precedent transaction . These transactions are considered risks that may affect further the ability to realize the projected earnings. a. earning accretion or dilution b. equity accretion or dilution ¢. equity control premium d. precedent transaction A key factor that is used to discount the net cash flows in the future is : a. cost of equity b. cost of earningsRee) eS Rea i abe). 2) 8elci Ay c. cost of debt d. cost of capital 17. The cost of can be computed primarily by getting the weight of cost of sources of fund, through and @. cost of equity; weighted average cost of capital: capital asset pricing model b. cost of equity; average cost of capital; capital asset pricing model c. cost of capital; weighted average cost of capital; capital asset pricing model d. cost of capital; average cost of capital; capital asset pricing model 18. The is a calculation of a firm's in which each category of is proportionately weighted. a. weighted average cost of capital; capital; cost of capital b. weighted average cost of capital; cost of capital; capital c. average cost of capital; capital; cost of capital d. average cost of capital; cost of capital; capital 19. The beta in Capital Asset Pricing Model is a. use to represent volatility/risk of the market b. arbitrary systematic risk coefficient cc. the pricing multiple used to compute for the cost of capital d. the credit spread/debt premium added to risk free rate. 20. The following statements are correct for the Economic Value Added (EVA), except: a. The most conventional way to determine the value of the asset is through its economic value added. b. Economic value added (EVA) is a convenient metric in evaluating investment as it quickly measures the ability of the firm to support its cost of capital using its earnings. c. EVA is the excess of the company's equity after deducting the cost of capital. d. The general concept here is that higher EVA is better for the firm. 21. The elements that must be considered in using EVA are as follows, exceptRA een ata a. Reasonableness of earnings b. Appropriate cost of capital c. Volatility of the market d. Both a and b 22. In which income based valuation method wherein the value of the asset or the investment is determined using the anticipated earnings of the company divided by the cost of capital? a. Economic Value Added (EVA) b. Capitalization of Earnings Method c. Capital Asset Pricing Method d. Discounted Cashflow Method 23. The following statements are factual discussions about Capitalization of Earnings Method except: a. In capitalization of earnings method, the value of the asset or the investment is determined using the anticipated earnings of the company divided by the cost of capital. b. You may use past earnings in the Capitalization of Earnings method for cases wherein earnings are fixed. c. The formula used in Capitalization of Earnings is actually grossing up the future earnings using capitalization rate to come up with the estimated asset value. d. Cost of Capital used in the Capitalization of Earnings method is equivalent to the expected yield or the required rate of return. 24. In capitalization of earnings method, these types of assets are not Part of the computation hence need to be added to the Capitalized Earnings. a. Fixed Assets b. idle Assets c. Current Assets d. Noncurrent Assets 25. The following statements are limitations of capitalization of earnings method, except a. this does may not fully account for the future eamings or cash flows thereby resulting to over or undervaluation b. inability to incorporate contingencies c. assumptions used to determine the cashflows may not hold true since the projections are based on a limited time horizon d. Itis simple and convenientVALUATION CONCEPTS opiates WULTIPLE CHOICE PROBLEM. Write the letter of the best answer before number of the question or statement being answered. HBB Company for the last ten years, has earned and had cash flows of about Php 500,000 every year. As per the predictions of the company's earnings, the same cash flow would continue for the foreseeable future. The expenses for the business every year is about Php 100,000 only. Based on the available public information a Php 4 million Treasury bond has a prevailing return of Php 400,000 annually. Using Capitalization of Earnings approach, what is the value of HBB Company? Php 4,000,000.00 Php 3,000,000.00 Php 2,000,000.00 Php 1,000,000.00 ooo 2. HCB Company for the last ten years, has earned and had cash flows of about P600,000 every year. As per the predictions of the company’s earnings, the same cash flow would continue for the foreseeable future. The expenses for the business every year is about P500,000 only. Based on the available public information a Php 4 million Treasury bond has a prevailing return of Php 40,000 quarterly. > Using Capitalization of Earnings approach, what is the value of HCB Company? Php 3,000,000.00 Php 2,500,000.00 Php 3,500,000.00 Php 1,000,000.00 pose ey Heart, Inc. plans to sell its business and has used Capitalization of Earnings to be an appropriate valuation method with a stable cashflow of Php 1,000,000.00 for the last 5 years. Forecast shows that similar level of cashflow would continue in the next several years. With the stability of the business it was sold to HBB, Inc. for Php 6,000,000.00 with premium of Php 1,000,000.00. Similar instruments based on the available data is a Treasury Note with a determined quarterly interest rate. Annual Operating Expenses isPhp 600,000.00 Compute for the capitalization rate used by Heart, Inc. noo Hai-dee is looking to buy a property that costs Php115,000, and can be leased out for Php750 a month. She has done some research and has determined the net operating expenses to be Php5,000 per year. Her desired cap rate is 10%. What is the appraisal value of this property using the capitalization of eamings approach? . Php 40,000.00 . Php 42,500.00 Php 45,000.00 Php 50,000.00 pepe . Heinz, inc. expects to generate earnings over the next five years of Php50,000.00; Php60,000.00; Php65,000.00; Php70,000.00 and Php75,000.00. Using the Capitalization of Earnings Method, what is the estimated value of the firm using 10.00% required rate of return? a. Php 640,000.00 b. Php 657,378.72 c. Php 657,738.72 d. Php 604,000.00 Herbert, Inc. expects to generate earnings over the next five years of Php50,000.00; Php60,000.00; Php65,000.00: Php70,000.00 and Php75,000.00. Using the Capitalization of Earnings Method, what is the estimated value of the firm using 8.00% required rate of return? . Php 600,000.00 Php 800,000.00 Php 500,000.00 . Php 700,000.00 aQo0m . Ernesto, inc. has projected average earnings every year of Php 100 Million. Debt to Equity Ratio is 3:1. After tax cost of debt is 5% while cost of equity is 10%. The Board of Directors of the companyRenan ea seers decided to sell the company for P1 Billion. Compute for the Economic Value Added (EVA). a. Php 37,500,000.00 b. Php 50,000,000.00 c. Php 0.00 d. Php 25,000,000.00 8. Using Weighted Average Cost of Capital (WACC), ignoring taxes, compute the cost of capital of a company with debt ratio of 0.75:1 and is paying yearly average interest for its loans of 4% and dividend rate of 5% yearly. a. 4.00% b. 4.25% c. 4.50% d. 5.00% 9. Using Capital Asset Pricing Method (CAPM), compute for the cost of capital (equity) with risk-free rate of 5%, market return of 12% and Beta of 1.3. a. 14.01% b. 14.10% c. 14.00% d. 14.11% 40. Using Capital Asset Pricing Method (CAPM), compute for the cost of capital (equity) with risk-free rate of 4%, market return of 8% and Beta of 1.5. a. 10.00% b. 11.00% c. 12.00% d. 13.00% 11. With risk-free rate of 5%, Beta of 1.5, market retum of 8%, prevailing credit spread of 3%, tax rate of 30% and Equity ratio of 30%, compute for the weighted average cost of capital, a. 6.00% b. 6.77% c. 7.00% d. 7.77% 4 N With risk-free rate of 6%, B credit spread of 3%, tax rate CAPM method compute for @ 5, market retum of 8%, prevailing and Equity ratio of 30%, Using15. 16. Ue . 9.00% 677% - 8.00% 8.77% a. b. c d . The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%, market return of 8%, prevailing credit spread of 3%, tax rate of 30% and Equity ratio of 30%, compute for the volatility of stocks or Beta. a. 1.00 b. 1.25 ec. 1.50 d. 1.75 . The appropriate WACC of a firm is 6.43%. With risk-free rate of 4%, market return of 8%, prevailing credit spread of 3%, tax rate of 30% and Equity ratio of 30%, compute for the after tax cost of debt. a. 4.90% b. 5.00% c. 7.00% d. 10.00% SPPE Corp. is planning to expand and new projects is expecting to earn an average of Php375,000 annually. If the project requires for Php5,000,000 investment at 10% cost of capital. Compute for the Economic Value Added. a. Php 125,000.00 b. (Php 125,000.00) c. Php 875,000.00 d. (Php 875,000.00) SLAC Corp. is planning to expand and new projects is expecting to earn an average of Php750,000 annually. If the project requires for Php5,000,000 investment at 12% cost of capital. Compute for the Economic Value Added. a. Php 150,000.00 b. (Php 150,000.00} ¢. Php 600,000.00 d. (Php 600,000.00) SPRO Corp. is planning to expand and new projects is expected to have an EVA of Php200,000.00. The annual cost of capital at 10% amounts to Php400,000.00. What is the average monthly earning projected for this project?JATION CONCEPTS AND METH a. Php 600,000.00 b. Php 50,000.00 c. Php 60,000.00 d. Php 500,000.00 18. SLMA Corp. for the last ten years, has earned and had cash flows of about P600,000 every year. As per the predictions of the company’s earnings, the same cash flow would continue for the foreseeable future. The expenses for the business every year is about P500,000 only. Based on the available public information a P4 million Treasury bond has a prevailing return of P40,000 quarterly. Using Capitalization of Earnings approach, assuming SLMA would sell 20% of its shareholdings, what will be the minimum selling price? a. Php 2,500,000.00 b. Php 500,000.00 c. Php 1,500,000.00 d. Php 1,000,000.00 19. SPLI, Inc. has a Debt to Equity Ratio of 3:1. After tax cost of debt is 5% while cost of equity is 10%. The Board of Directors of the company decided to sell 100% of the company for Php 1 Billion. Compute for the projected monthly average earnings assuming an EVA of Php 57,500,000.00 a. Php 37,500,000.00 b. Php 10,000,000.00 c. Php 120,000,000.00 d. Php 100,000,000.00 20. The appropriate WACC of a firm is 6.77%. With market return of 8%, prevailing credit spread of 3%, tax rate of 30% and Equity ratio of 30%, what is the risk free rate of the firm with Beta of 1.5? a. 4% b. 5% Cc. 6% d. 7%MULTIPLE CHOICE THEORY. the number of the ques Write the letter of the best answer before or statement being answered. 1. These are business opportunities that has long-term to infinite operational period. a. Going Concem Business Opportunities b, Perpetual Business Opportunities c. Stable Business Opportunities d. Strategic Business Opportunities 2. This refers to the amount of cash available for distribution to both debt and equity claim from the business or asset. a. Operating cash flows b. Investing cash flows c. Financing cash flows d. Net cash flows 3. In determining the value of the equity value using discounted cash flows, are comprised by activities based on operating and investing activities, then adjusted by the financing activities to determine the , which is the basis for equity value a. Net Cash Flows to the Firm; and Net Cash Flows to Equity b. Net Cash Flows to the Firm; and Net Cash Flows to Creditors ¢. Net Cash Flows to the Creditors; and (2) Net Cash Flows to Equity d. None of the above since there are three levels of net cash flows. 4. This represents the cash flows made available to both debt and equity claims against the company. a. Net Cash Flows to the Firm | b. Net Cash Flows to Creditors c. Net Cash Flows to Equity d. Operating Cash Flows 5. This represents the amount of cash flows made available to the equity stockholders after deducting the net debt or the outstanding liabilities to the creditors less available cash balance of the company. a. Net Cash Flows to the Firm b. Net Cash Flows to Creditors c. Net Cash Flows to Equity d. Operating Cash Flows Le6. This represents the value of the company in perpetuity or in a going concern environment. a. Terminal Vaiue b. Salvage Value c. Perpetuity Value d. Infinity Value 7. DCF Analysis is most applicable to use when the following are available, except 2 a. Validated operational and financial information b. Reasonable appropriated cost of capital or required rate of return c. Cash flow pricing multiples d. New quantifiable information 8. The following statements are fallacy on financial modelling concept except a. Financial Modelling is a sophisticated and nonconfidential activity in a company or for an analyst. b. Most of the companies hire financial modelers to assist them in determining the value of GCBOs or any opportunities ¢. Most financial modelers do not have extensive financial acumen and vast knowledge and experience. d. Operations Manager are good candidate for this role given their ability to understand operational models and design long term financial strategies. 9. The following are truths about the gathering information except for a. Historical information must be made available before the financial model is constructed. b. Historical information may be generated from, but not limited to the following: audited financial statements, corporate disclosures, contracts, industry and market prospects and peer information. c. Audited Financial Statements are the most ideal reference for the historical performance of the company. d. Statement of Income are used to determine the historical financial performance. 40. These are the most ideal reference for the historical performance of the company. a. Audited Financial Statements b. Statement of Income c. Statement of Financial Po: d. Notes to Financia’inancial Position d. Notes to Financial Statements 12. This component of Audited Financial Statement is used to determine the book value of the assets and the disclosed stakes of debt and equity financiers. a. Statement of Stockholder's Equity b. Statement of Income ¢. Statement of Financial Position d. Notes to Financial Statements 13. This component of Audited Financial Statement is used to illustrate the company historically financed its operations and investments. a. Statement of Stockholder's Equity b. Statement of income ¢. Statement of Financial Position d. Statement of Cash Flows 14. This is one of the most important components of the financial statements which provides the summary of important disclosures that should be Considered in the valuation. a, Statement of Stockholder's Equity b. Statement of Income ¢. Statement of Financial Position d. Notes to Financial Statements ! 18. Collectively, the financial model must be able to filter the information that would be necessary for the valuation. What are the two characteristics of information that are considered very important in financial modelling? a. Availability and Relevance b. Reliability and Relevance c. Timeliness and Reliability d. Timeliness and Availability 4 a . Drivers for growth used in financial modelling are suggested to be those validated and is represented by authorities like government or experts. The following govemment agencies provide this information except a. Philippine Statistics Authority b. Bangko Sentral ng Pilipinas ¢. Research Centers funded by Local Government Units d. All of the above are sources of information for financial modelling. 13719. 20. 2 22. . The usual growth indicators used in financial modelling are as follows, except . Gross National Product Inflation Population Consumer price index ago growth rate is factored in to serve as a growth driver for the demand of the product, particularly for the merchandising or manufacturing business. a. Gross National Product b. Inflation c. Population d. Consumer price index The can be used determine the appropriate cost of capital by weighing the portion of the asset was funded through equity and debt. a. Weighted Average Cost of Capital b. Capital Asset Pricing Model c. Cost of Equity and Debt Model d. All of the above This will serve as the dashboard to enable the modelers to analyze the results and to facilitate the readers’ appreciation on the results of the project. a. Data Key Results b. Title Page c. Cover Page d. Assumption Sheet . This refers to the theoretical value of the core activities of a business entity as reflected its net cash flows. a. Enterprise Value b. Equity Value c. » Shareholder Value d. Core Value Which of the following is not 2 included in the computation a. Depreciation b. Amortization c. Impairment of d. After-tax interest cash charges that are ncome?Le) hee) eave 2! 23. This item represents the net investment in current assets like receivables and inventory reduced by current liabilities. a. Investment in fixed capital b. Investment in operating capital c. Investment in marketable securities d. Investment in shareholder capital 24. When computing net cash flows from EBITDA, which of the following items should be added back to EBITDA? a. Investment in working capital b. Investment in fixed capital c. After-tax non-cash charges d. Tax impact on EBITDA 25. This signifies the level of available cash that a business can freely declare as dividends to its common shareholders. a. Net Cash Flow to Equity b. Net Cash Flow to the Firm c¢. Discounted Net Cash Flows d. Net Cash Flow to CreditorsMULTIPLE CHOICE PROBLEM. Write the letter of the best answer before the number of the question or statement being answered. 1 Green Tea Corp. reported the following information: Revenue of Php 32,500, Operating Expenses of Php16,250. included in the operating expense are salaries and wages of Php 1,450, depreciation of Php500, and rentals of Php275. The interest expense incurred is Php200. How much is the EBITDA for the period? Php16,750 b. Php16,250 c. Php16,550 d. Php14,025 » Cornerstone Inc. reported revenue for the period amounting to Php75,200 and EBITDA Margin of 60%. How much is the operating expenses excluding depreciation? a. Php75,200 b. Php45,120 c. Php30,080 d. Zero Singapore Ltd. has reported Php125,000 revenue where their EBITDA Margin is 45%. If the taxes are 30% of the EBITDA, how much is the Net Cash Flows if the capital expenditure was purchased at Php1,500? Php37,875 b. Php39,375 c. Php56,250 d. Php46,625 » Malaysia Inc. purchased a capital expenditure amounting to Php 1,500 and reported revenue of Php125,000 and operating expenses is Php50,000. The company incurred Php500 for interest. If the depreciation: is Php5,000, how much is the Net Cash Flows? Tax Rate is 30% a. Php75,000 b. Php57,650 c. Php52,150 d. Php56,150INCEPTS AND METHODOLOGIES Pawikan Corp. reported the following information: Year __| Net Cash Flows 1 Php250 z Php300, 3 Php360. How much is the net present value of the Net Cash Flows, using discount rate of 10%? @. Php300.12 b. Php900.85 c. Php738.17 d, Php1,000 Dracaris Inc. purchased an investment and expected to earn: Year Net Cash Flows 4 Php250 2 Php300 3 Php450 TV Php900 Assuming a 10% discount factor, how much is the net present value based on the foregoing question, considering an additional investment is Php1,000? a. Php489 b. Php580 c. Php1,000 d. Php1,489 Lumus Corp. incurred business meetings expenses for the year amounting to Php65,200.00. The company assumes 5% inflation all its expenses for the following year. The business meeti expenses for the following yearis Php65,200 Php68,460 Php70,000 Php72,400 aeop Skywalker Inc. incurred office supplies expenses amounting to Phe 22,680 and Php21,000 for the years 20x2 and 20x1, respectively There is no change in the volume or quantity of the office supplies except prices. The inflation of office supplies is 141VALUATION CONCEPTS AND METHODOLOGIES TA% 8% 9% 10% pore 9. Certified Inc. is developing its financial plan for the following year. In the current year, they are very certain that the volume to be sold is 750 units at Php125.00 per unit. Their operating profit margin is 40%, where depreciation is Php1,250. For purposes of valuation, they would like to get quickly determine their EBITDA. Certified inc is expecting a growth rate of 12%. They will not increase their prices to maintain their captured market. The units they are projecting to be sold the following year is a. 750 b. 800 c. 840 d. 880 10. Refer to Certified Inc. The company is expecting a growth rate of 12%. They will not increase their prices to maintain their captured market. The projected sales to be eamed the following year is a. Php110,000 b. Php105,000 ¢. Php100,000 d. Php93,750 4 . Refer to Certified Inc. projected EBITDA for t a Based on the information provided, the succeeding year is 0 b. ce d. 4 value of its future cash flows pany’s investment is Php500 for it to f the company is Ss . Basketball Corp. amounting to Phpt.4 operates. The net ¢] VALUATION CONCEPTS AND METHODOLOGIES 413. Republika Inc. reported the following prospective information: | Year 1 Year2 | Year 3 Revenues |_ 750,000 1,200,000 1,600,000 Cost of Goods Sold_| 400,000 650,000 900,000 Operating Expenses | 150,000 200,000 300,000 Income tax rate is at 30%. Capital investment of Php150,000 is expected to be spent every year while working capital investment is at Php40,000. Depreciation of property is at Php200,000 yearly. How much is the projected net cash flows for Year 2? e. Php245,000 a. Php255,000 b. Php350,000 c. Php445,000 14. Refer to Republika Inc. How much is the projected net income for Year 3? Php280,000 Php290,000 Php400,000 Php700,000 aoe 15. Refer to Republika Inc. How much is the EBITDA in Year 17 a. Php140,000 b. Php150,000 c. Php340,000 d. Php400,000 16. Gising Company is preparing the following financial information for presentation to prospective investors. Year 1 Year 2 Year 3 Revenues |_ 1,000,000 1,500,000 2,000,000 Cost of Goods Sold 500,000 700,000. 1,100,000 Operating Expenses 300,000 500,000 700,000 Corporate income tax rate is 30%. Gising Company is looking at a constant growth on net cash flows after the three-year histori forecast they prepared. Weighted average cost of capital of Gisi Company is 8%. The operating expenses include annual depreciati of Php250,000. Gising Company has long-term debt amounting to Php1,000,000. Gising Company projected that it will need additio PhP50,000 every year to support increasing working capi 14317. 18. 1 9 20. VALUATION CONCEPTS AND METHODOLOGIES requirements and PhP120,000 for capital investments. How much is the net cash flow of Gising Company in Y1? a. Php390,000 b. Php290,000 c. Php220,000 d. Php140,000 Refer to Gising Co. How much is the terminal value recognized after the three-year forecast period? a. Php10,880,000 b. Php12,466,667 c. Php13,090,000 d. Php10,880,000 Refer to Gising Company. What is the net cash flow to the firm? a. Php11,140,489 b. Php12,103,272 c. Php12,808,412 d. Php13,974,000 ). Refer to Gising Company. What is the net cash flow to equity? a. Php10,140,489 b, Php11,103,272 c. Php11,140,489 gd, Php12,103,272 Magsaysay Company reported the following revenues in the last 5 years. Year 1 Year 2 Year3 | Year4 Year 5 2,000,000 | 2,500,000 | 2,320,000 | 2,700,000 | 3,100,000 What is the compounded annual growth rate of the revenues reported by Magsaysay Company? a. 55.0% b. 14.8% c. 11.6% d. 9.2%Re Kee esa ean ebetercisy 21. The income statement of Orange Company showed the following figures: Revenues Php750,000 Cost of Goods Sold 290,000 Gross Margin 500,000 Operating Expenses 200,000 Operating Income 300,000 Orange Company owns an equipment with original acquisition cost of P1,000,000 with useful life of 10 years. Operating expenses also include interest expense of P15,000. Prevailing income tax rate is at 25%. How much is the EBITDA of Orange Company? a. Php415,000 b. Php400,000 c. Php340,000 d. Php325,000 22. BTZ Company is projecting its income statement for the next 3 years using the prior year information as baseline: * Revenue in prior year is at P1,500,000 ¢ Revenues are projected to grow by 5% year-on-year in line with inflation. * Variable cost of goods sold is projected to be at 30% of revenues. * Fixed cost of goods sold is 400,000 — including equipment depreciation of 200,000. * Operating expense % to revenue is 20% « Corporate tax rate is 30%. * Annual investment of P25,000 for working capital is anticipated to support growth. What is the net income of BTZ Company in Year 1? a. Php245,000 b. Php271,250 c. Php295,250 d. Php387,500 23. Refer to BTZ Company. What is the net cash flow in Year 2? a. Php298,813 b. Php473,813 c. Php498,813 d. Php626.875 145VALUATION 24, Unicap Company is opening its doors to investors and shared the following prospective financial information 2021 2022 2023 2024 Revenues 10,000,000 12,000,000 14,000,000 15,000,000 Cost of Goods Sold 5,000,000 6,000,000 7,000,000 7,500,000 Gross Profit 5,000,000 6,000,000 7,000,000 7,500,000 Selling and Distribution 1,600,000 1,200,000 1,400,000 1,500,000 Administrative 400,000 400,000 400,000 400,000 Depreciation Expense 2,000,000 2,000,000 2,000,000 2,000,000 Operating Income 1,600,000 2,400,000 3,200,000 3,600,000 Income Tax Expense 480,000 720,000 + 960,000 1,080,000 Net Profit 1,120,000 1,680,000 2,240,000 -—-2,520,000 Required Annual Capital Investment 1,000,000 1,000,000 1,000,000 1,000,000 XYZ, an equity capital venture company, is considering infusing money to Unicap Company. Based on its assessment, cost of capital associated with this type of investment is at 10%. Unicap Company has going concern assumption with net cash flows expected to grow by 5%. In addition to potential capital investment, Unicap Company has outstanding debt of P10,000,000. What is the net cash flow to the firm of Unicap Company? a. Php70,958,800 b. Php59,468,971 ¢. Php54,879,120 a. Php50,488,355 25. Refer to Unicap Company. if XYZ Company is buying 20% of Unicap Company, what is the reasonable price that they should pay? a. Php49,468,.971 b. Php17,096,000 c. Php11.893,794 d. Php9,893,794ICEPTS AND METHODOLO! MULTIPLE CHOICE THEORY. Write the letter of the best answer before the number of the question or statement being answered. 1. The idea behind this valuation approach is that the value of the business can be determined by reference to reasonably comparable guideline companies for which transaction values are known. @. Market Approach b, Comparable transactions Approach ¢. Earnings Approach d. Pricing Multiple Approach 2. The following are Market Approach of Valuation except a. Comparative private company sales data method b. Guideline public company data method c. Prior Transaction method d_ Heuristic Pricing Model method 3. This uses expert opinions of professional practitioners. a. Empirical Approach b. Heuristic Pricing Model c. Statistical Approach d. Relative Valuation Approach 4. Which of the following is not a source of public information of the public listed companies? a. Securities and Exchange Commission b. Philippine Stock Exchange ©. Philippine Dealings and Exchange Corporation d. Government Official Gazette 5. Other literature called this as Guideline Transaction Method a. Comparative private sales data b. Guideline public company data c. Prior transactions method d. Heuristic Pricing Model 6. This method involves finding out prior transactions (i.e. mergers and acquisitions, divesture, etc.) of comparable companies. Such a transaction might represent either a minority perspective or a majority perspective. Transactions data can be obtained by finding out the exact industry of the business under consideration using the established industry classification methods such as SIC and NAICS and searching valuation databases for historical valuation evidence. [25h I a| VALUATION CONCEPTS AND METHODOLOGIES a. Comparative private sales data b. Guideline public company data c. Prior transactions method d. Heuristic Pricing Model 7. This market approach method involves identifying a comparable company and obtaining the stock price for the company’s listed securities. a. Comparative private sales data b. Guideline public company data ¢. Prior transactions method d. Heuristic Pricing Model 8. This method involves looking up historical transactions in securities of the business undervaluation. The valuation might be for minority stake such a historical stock quote from a listed stock exchange or it might be for a majority stake such a merger and acquisition transaction involving the business. a. Comparative private sales data b. Guideline public company data c. Prior transactions method d. Heuristic Pricing Model 9. In this method, you use business pricing formulas that are developed based on the expert opinion of professionals involved in business sales. a. Comparative private sales data 7 b. Guideline public company data c. Prior transactions method d. Heuristic Pricing Model 10. The following are noted advantages and disadvantages of Comparative private sales data method except a. An advantage of this method is that comparison data includes sales of small businesses that are quite similar to the small business being valued. b. Another advantage is the availability of good sources of private business sales data. c. One of its disadvantages is insufficient market evidence in some industries. d. Another advantage is that it requires careful data selection, analysis and consistent data reporting standardsre 12. 13. a RON e sae anes The following are all advantages of Guideline Public method except for . Plenty of transaction data available from the public capital markets. Business sale data reporting is generally consistent and reliable. Business financial reporting data are readily available. . Data generally involves sales of non-controlling business ownership interest aon Sales of businesses which closely resemble the business being valued are most commonly used to estimate the : 4 a. pricing multiples b. financial ratios ¢. price comparative ratios d. selling price This is the market value combined value of equity and debt capital raised by the company a. Market Value of the Invested Capital b. Market Value of the Total Assets ¢. Market Value of the Equity d. Market Value of the Net Assets . This is the market value of equity capital raised by the company. a. Market Value of the Invested Capital b. Market Value of the Total Assets c. Market Value of the Equity d. Market Value of the Net Assets . This ratio represents the relationship of the market value per share and the earings per share. a. Price Earnings ratio b. Market Value to Book ratio ¢. Book to Market ratio d. EBITDA ratio . This is used to determine the appreciation of the market to the value of the company as compared to the value it reported under its Statement of Financial Position. a. Price Earnings ratio b. Market Value to Book ratio ¢. Book to Market ratio d. EBITDA ratio 167417. This represents for the net amount of revenue after deducting operating expenses and before deducting financial fixed costs, taxes and non- cash expenses. a. EBITDA b. Dividend Yield ratio c. Book to Market ratio d. EBITDA Multiple 48. This describes the relationship between the dividends received per share and the appreciation of the market on the price of the company. a. EBITDA b. Dividend Yield ratio c. Book to Market ratio d. EBITDA Multiple 49. This is the ratio of the business value to the net amount of revenue after deducting operating expenses and before deducting financial fixed costs, taxes and non-cash expenses. a. EBITDA b. Dividend Yield ratio c. Book to Market ratio d. EBITDA Multiple 20. Market Value approach in determining the equity value of company would rely on the following except a. Audited financial statements of the company valued b. Audited financial statements of the company similar or within the industry of the one being valued News about the company valued d. Bank Statements °MULTIPLE CHOICE PROBLEMS. Write the letter of the best answer before the number of the question or statement being answered. 1. Pluto Corp., a listed company, sells its share in the stock market at Php13.5 per share with EPS of Php 2.5. Based on the foregoing how much is the P/E Ratio? a. 5.4 b. 5.0 c. 2.5 a. 3.5 2. If Jupiter Inc.’s market value per share is Php275 Million. The EPS it generated is Php12.50. What is the P/E ratio? a. Php 27.5 b. Php 20.0 c. Php32.8 d. Phpi25 3. Sunflower Inc. provided the following information EPS is Php25 per share while P/E Multiple is 2.0. How much is MVPS? a. Php50 b. Php50.75 c. Php48 d. Php55 4. Leone Inc., a listed corporation, reported on its Statement of Financial Position total assets of Php85,000,000. The company maintain its debt ratio of 70% and have outstanding capital stocks of 1 million. Given their performance and financial stability their stocks were traded at Php30 share. Based on the foregoing, the book to market ratio of Leone Inc. is a. 1.0 b. 0.95 c. 0.90 d. 0.85 5. The management accountant of Yza Belle Inc. has calculated their book value per share at Php 6.25. If Yza Belle shares will be sold using the average book to market ratio for the industry similar to the company of 0.68, the price per share would be at least a. 9.19Pure esa Orn carpe krass d. 10,00 For 6 to 7. Raphael Marco Corp., a company with outstanding common shares of 1,000,000 and 10% preferred shares amounting to Php1,000,000. 6. Raphael Marco's earnings per share based on its reported net income of Php7,250,000 is = a. Php 7.35 b. Php 7.25 c. Php7.15 d. Php7.05 7. The firms similar to Raphael Marco is having a P/E Multiple of 4. Given the earnings per share calculated in No.16, the reasonable market value per share should be a. Php29.40 b. Php29.00 c. Php28.60 d. Php28.20 8. Lucille Inc. declared its dividends at Php1.25/share. The company’s stocks were last traded at Php46 per share. The dividend yield of the company is a. 36 b. 0.028 c. 0.28 d. 28 9. Uno Corp. declared its dividend consistent with its dividend yield of 0.10 or 10%. This year, Uno Corp’s stockholder receives Php0.75 for every share they have in the company. Based on the foregoing, the company's market value per share when the divided was declared should be Php0.075 Php7.50 Php3.5 Php0.05 aoc 10. Martyne Inc.’s market capitalization is already around Php67,000, when they had reported their revenue at Php32,500, which is 50% of the operating expenses. Out of the operating expenses the company’s cost to depreciate its assets is Php500. The market capitalization is the basis for the market value per share when divided into the company'sMETHODOLOGIES outstanding shares of 1,000. Based on the foregoing, Martyne’s EBITDA multiple is about a. 4.25 b. 4.12 c. 4.00 d. 2.00 1 - JVL Holdings Inc. reported its EBITDA margin at 25% when their revenues are Php30,000,000. JVL Holdings has outstanding shares of 7,000,000. The company would like to sell its stocks, upon doing fesearch the firms similar to JVL Holdings disclosed the following EBITDA multiple: Dot Corp. @ 8.00, Period Corp. @ 7.5; Exclamation Inc. @ 6.25. Using the average EBITDA mulliple, the potential market value per share of JVL Holdings is a. Php54.38 b. Php6o.52 c. PhpS0.25 d. Php52.17 12. Based on JVL Holdings information, except that the cost of capital is Taised to 15%, the economic value added to breakeven should be a. Php125,000 b. Php250,000 c. Php500,000 d. Php750,000 1 a . Victoria Corp. estimated its terminal value on the Sth year of operations from the time of the valuation to be Php825 Million. Using the discount rate of 5%, the present value of the terminal value is a. Php825.00 Million b. Php785.71 Million c. Php678.73 Million d. PhpS46.41 Million 14. BMV Inc. has outstanding stocks of 1,500,000 and market value per share of Php22.50 with a P/E Ratio of 4. The company has sustained = net income margin at 25%. The revenue of BMV Inc. should be Php33,750,000 . Php22,500,000 Php8,437,000 Php90,000,000 aeop a7i45. BMV Inc. has outstanding stocks of 1,500,000 and market value per share of Php22.50 with a P/E Ratio of 4. The company has sustained it net income margin at 25%. The company’s reported EBITDA Margin is 40%. The EBITDA of BMY Inc. should be % a. Php33,750,000 b. Php8,437,000 c. Php13,500,000 d. Php20,250,000VALUATION CONCEPTS AND METHODOLOGIES MULTIPLE CHOICE THEORIES. Write the letter of the best answer before the number of the question or statement being answered. 1, An investigation, audit, or review performed to confirm the facts of a matter under consideration. a. Due Care b. Due Diligence c. KYC Activity d. Forensic review 2. With that law, securities dealers and brokers became tesponsible for fully disclosing material information about the instruments they were selling. a. Securities Act of 1933 b. Securities Act of 2000 c. Securities Act of 1983 d. Sarbanes-Oxley Act 3. This is due diligence is performed by companies considering acquiring other companies as well as by equity research analysts, fund managers, broker-dealers, and individual investors. a. Company Initiated/Pertormed Due Diligence b. Individual Investor Initiated/Performed Due Diligence c. Partnership Due Diligence d. Gompany Initiated/Performed Due Care 4. Which of the following can do Due Diligence? @. Individual Investor b. Acquiring Companies c. Companies being Acquired d_ All of the above 5. This is concerned with the legal and financials of the company under evaluation. So essentially, this is quantitative, which measurement can be normally done by use of mathematical calculation. a. Hard Due Diligence b. Soft Due Diligence c. Legal Due Diligence d. Forensic Due Diligence 198(eorelyeleya ae 6. This is concemed with the people, within the company and in its customer base. So essentially, this is qualitative, which measurement cannot be normally done by use of mathematical calculation a. Hard Due Diligence b. Soft Due Diligence c. Legal Due Diligence d, Forensic Due Diligence 7. In 2007, the Harvard Business Review (HBR) dedicated part of its April Issue to what it called "human capital due diligence". Which of the following term HBR is referring to? a. Hard Due Diligence b. Soft Due Diligence c. Legal Due Diligence d. Forensic Due Diligence 8. The following are Hard Due Diligence activities, except a. Reviewing and auditing financial statements b. Scrutinizing projections for future Performance c. Evaluation of targeted workforce how well it will mesh with the acquiring corporation's culture d. Reviewing potential or ongoing litigation 9. The following are part of Due Diligence process, except a. Market Capitalization Evaluation b. Trend Analysis of Revenue, Profit and Margin c. Competitors and Industry Analysis d. All of the above 10. Mergers and acquisitions (M&A) are defined as of companies. a. Divestiture b. Synergy ¢. Consolidation d. CompetitionAND METHODOLOGIES 11. Differentiating the two terms, Mergers is the of two companies to form one, while Acquisitions is one company by the other. a. combination; taken over b. taken over; combination ¢. consolidation; taken over d. synergy; taken over 12. Mergers & Acquisitions can take place by the following, except @. purchasing assets b. purchasing common shares. c. exchange of shares for liabilities d. exchange of shares for assets 13. Which of the following is not a type or form of M&A? a. merger through absorption b. merger through consolidation cc. short form merger d. long form merger 14. The following are reasons for M&A except a. financial synergy ‘ b. improving company's performance c. decrease of market share d. Tax considerations 15. In M&A the following should be taken into account except @ The company must be willing to take the risk and vigilantly make investments to benefit fully from the merger as the competitors and the industry take heed quickly b. To reduce and diversify risk, multiple bets must be made, in order to broadened down to the one that will prove fruitful c. To reduce and diversify risk, multiple bets must be made, in order to narrow down to the one that will prove fruitful‘TION CONCEPTS AND METHODOLOGIES d. The management of the acquiring firm must learn to b resilient, patient and be able to adopt to the change o to ever-changing business dynamics in the industry 16. This would include self-assessment of the acquiring com with regards to the need for M&A, ascertain the valuation (undervalued is the key) and chalk out the growth plan through & target. a. Pre-acquisition review b. Search and screen targets c. Investigate and valuation of target d. Post merger integration 17. This would include searching for the possible apt takeover candidates. This process is mainly to scan for a good Strategic ft for the acquiring company. a, Pre-acquisition review b. Search and screen targets c. Investigate and valuation of target d. Post merger integration 18. Formal announcement of the agreement of merger by both the participating companies a. Pre-acquisition review b. Search and screen targets c. investigate and valuation of target | d. Post merger integration | 19. The following are reasons for the failure of M&A, except a. Difference in objectives of the companies b. Poorly Managed Implementation ©. Incomplete Due Diligence d. Overly Optimistic projections 20.0 is the disposal of company's assets or 2 business unit through a sale, exchange, closure, or bankruptcy a. Divestment b. Business Failures c. Divestiture 201VALUATION CONCEPTS AND METHODOLOGIES d. Either a ore 21. The following are rationales of companies behind divestiture eeceph @. To sell of redundant business b. To generate funds c. To liquidate assets and divide among the owners d. To ensure business survival or stability 22. Selling a business subsidiary to another company to raise capital and apply the funds to more productive core units instead. a. Partial Sell-offs b. Spin-off demerger c. Split-up demerger d. Equity carve-out 23. A business strategy wherein a company’s division or unit is separated and made into an independent company. a. Partial Sell-offs b. Spin-off demerger cc. Split-up demerger d. Equity carve-out 24. When a company splits-up into one or more independent companies, and consequently, the parent company is dissolved or ceases to exist. a. Partial Sell-offs b. Spin-off demerger c. Split-up demerger d. Equity carve-out 25. A corporate approach wherein the company sells a portion of its wholly-owned subsidiary through initial public offerings or IPOs and still retains full management and control. a. Partial Sell-offs b. Spin-off demerger c. Split-up demerger d. Equity carve-out[Renae 26. A business valuation method that evaluates the value of your company based on your company’s profit and what kind of retur= ‘on investment an investor could potentially receive for buying ines your business. a. Earnings Approach b. ROI-based evaluation method c. Market Approach d. Income-based Approach 27. This calculates a business's maximum worth by assigning = multiplier to its current revenue. Multipliers vary according to industry, economic climate, and other factors. a. Pricing Multiple Approach b. Discounted Future Earnings method c. Capitalization of earnings method d. Time Revenue method 28. Multiples of Earning Valuation Method is also known as a. Pricing Multiple Approach b. Discounted Future Earnings method ¢. Capitalization of earnings method d. Time Revenue method 29. With this approach, your balance sheet is used to calculate the value of your equity or total assets minus total liabilities and this value represents your business’s worth. a. Asset Based Valuation Method b. Book Value Method c. Income based Method d. Net Assets Method 30. This method of valuation is based on the future estimated dividends to be paid out or the capacity to pay out. a. Dividend paying Capacity Method b. Dividend pay-out method ¢. Income Oriented method d. Either a orbMULTIPLE CHOICE PROBLEMS. Write the letter of the best answer before the number of the question or statement being answered. 1. Coco Melon, Inc. is planning to sell 20% of its business to ABC, Inc. Coco Melon would like to maintain an ROI of 25% over its Cost of Investment. Based on the recent Balance Sheet, Book Value of the Invested Capital is at Php200,000.00. What will be the minimum price that will be accepted by Coco Melon? a, Php 50,000.00 b. Php 40,000.00 c. Php 25,000.00 d. Php 20,000.00 2. Bounce Patrol, Inc has revenue increasing exponentially in 5 years. Based on the industry, this increase in revenue has an applicable earning valuation multiplier of 3. EBIT for the last 12 months is P900,000.00. How much is the business value of the company? a. Php 1,800,000.00 b. Php 2,700,060.00 c. Php 2,800,000.00 d. Php 2,500,000.00 3. As of the end of 2019, Baby Shark, Inc. has a Tolal Assets of Php5,000,000.00 and with a Debt to Equity Ratio of 4:1. Using Book Value Method, what is the minimum value it can sell the 30% of the business? a. Php 1,500,000.00 b. Php 1,200,000.00 ¢. Php 300,000.00 d. Php 700,000.00 4. Baby Helnz, Inc. has a five-year history of weighted average profits of Php 250,000. Its weighted average dividend payout Percentage over the last five years has been 30 percent and dividend yield rate are 7.5%. a. Php 75,000.00 b. Php 1,000,000.00 cc. Php 1,075,000.00 d. Php 1,200,000.00Ae ee EARP ANTE METHODOLOGIES 5. Baby Heinz, Inc. has a ten-year history of weighted average profits of Php 1,000,000.00. its weighted average dividend payo percentage over the last ten years has been 30 percent. The company has valued its business using dividend paying capa method and would like to sell 20% of its business at an amou: Php 750,000.00. What is the average Dividend yield rate of the company for the past 10 years? a. 8% b. 7% 6.2% d.5% 6. Mommy Hai-dee, Inc. as of yearend of 2019 has a Total Wi Capital of Php 3,000,000.00 and with a Current ratio of 2:1. Non current asset balance is Php 2,000,000.00 comprised of Fixed Asset. There is no long-term debt with debt ratio of only 0.25:1. | Using Book Value Method, what is the minimum value it can se the 15% of the business? a. Php 750,000.00 b. Php 550,000.00 c. Php 450,000.00 d. Php 400,000.00 7. Mother Josie, Inc. has revenue increasing exponentially in 5 years. Based on the industry, applicable earning valuation multiplier is 2. EBIT for the last 12 months is Php 1,500,000.00. How much is the minimum price it can sell 35% of the business? a. Php 1,050,000.00 b. Php 3,000,000.00 c. Php 1,500,000.00 d. Php 2,500,000.00 Nos. 8 to 10. Baron Family, Inc. for the last 12 months has the following financial information: Balance Sheet Total Liabilities - Php 9,000,000.00 income Statement Sales - Php 20,000,000,00 205VALUATION CONCEPTS AND METHOD' icy Gross Profit - Php 5,000,000.00 OPEX - Php 2,000,000.00 Financial Ratios Debt to Equity Ratio - 3:1 Dividend Yield Ratio - 10% Dividend Pay-out Ratio - 0.20:1 Baron Family, Inc. is planning to sell 20% of its business and would like to calculate the value of its business using various valuation methods. 8. How much is the value of 20% of the business using Book Value Method? a. Php,800,000.00 b. Php 9,000,000.00 c. Php 600,000.00 d. Php 3,000,000.00 9. How much is the value of 20% of the business using Dividend Paying Capacity? a. Php 6,000,000.00 b. Php 1,200,000.00 c. Php 600,000.00 d. Php 900,000.00 10. How much is the value of 20% of the business using Multiples of Earning Valuation Method assuming appropriate multiplier of 1.5? a. Php 4,500,000.00 b. Php 1,200,000.00 c. Php 600,000.00 d. Php 900,000.00