MANILA BUSINESS COLLEGE

VALUATION CONCEPTS
FINAL EXAMINATION
3RD TERM 202

ARIANNE RIVERA
3RD YEAR BSA

I. TRUE OR FALSE: WRITE T IF THE STATEMENT IS “TRUE” AND F IF THE STATEMENT IS

“FALSE”

1. T Intrinsic value refers to the value of any asset based on the assumption assuming there is a
hypothetically complete understanding of its investment characteristics.

2. T Value pertains to how much a particular object is worth to a particular set of eyes.

3. T According to the CFA Institute, valuation is the estimation of an asset’s value based on
variables perceived to be related to future investment returns, on comparisons with similar assets, or when
relevant on estimates of immediate liquidation proceeds.

4. T Going concern value is determined under the going concern assumption. Going concern
assumption believes that the entity will continue to do its business activities into the foreseeable future even if
the company experienced severe financial difficulty in certain circumstances.

5. T Fundamentals refer to the characteristics of an entity related to its financial strength,

profitability or risk appetite.

6. T Information traders react based on new information about firms that are revealed to the stock
market. The underlying belief is that information traders are more adept in guessing or getting new information
about firms and they can make predict how the market will react based on this.

7. T Uncertainty is captured in valuation models through cost of capital of discount rate.

8. T Leveraged buyout is the acquisition of another business by using significant debt which uses the
acquired business as collateral.

9. F Top-down forecasting approach starts from the lower levels of the firm and builds the forecast
as it captures what will happen to the company.

10. T Sensitivity analysis is the common methodology in valuation exercises wherein multiple other
analyses are done to understand how changes in an input or variable will affect the outcome (firm value).

11. F Asset has been defined by the industry as transactions that would yield immediate economic
benefits as a result of past transactions.

VALUATION CONCEPTS.FINAL EXAM. Page 1 of 5

12. F Brown field investment is the term used to describe businesses that are starting from scratch.

13. T Insurance companies use replacement cost value as the basis to determine insurance premium to
be charged to clients.

14. F The book value method account for the full value of the net assets that would result for

overage or understatement of value of the net assets recorded in the books.

15. T Reproduction value method is affected by asset age, size and its competitive advantage.

16. T Liquidation value method is an equity valuation approach that considers the salvage

value of the asset.

17. F Going concern business opportunities are those businesses that has a short term to finite

operational period.

18. T In replacement value method, it is important to know how old is the asset to enable the

valuator to determine the costs related in order to upkeep a similarly aged asset

19. T The book value method gives the most recent approximate company value

20. T Reproduction value is used for business ventures that are using highly specialized

equipment in their operations.

II. MULTIPLE CHOICE: Encircle the letter of the correct answer

21. These are investments that are already in the going concern state, as most businesses are in the optimistic
perspective that they will grow in the future because of historical proof.

A. Green Field Investments

B. Brown Field Investment

C. Blue Field Investment

D. Black Field Investments

22. The following describes the benefits of having a sound Enterprise-wide Risk Management, EXCEPT

A. Facilitates elimination of all business risks

B. Manage performance variability

C. Enhance business resilience against changes

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D. Improve distribution of resources across the firm

23. One major linked to the value of business that shows how is the operating performance of the firm in recent
year.

A. Current operations

B. Future prospects

C. Embedded risks

D. All of the above

24. These persons are interested in understanding and measuring the intrinsic value of the firm.

A. Fundamental analysts

B. Activists investors

C. Chartists

D. Information Traders

25. ____________ refers to the characteristics of an entity related to its financial strength, profitability or risk
appetite.

A. Intrinsic value

B. Fundamentals

C. Technical Characteristics

D. Financial Value

26. The main basis to determine the value of the insurance premium to be paid to cover the risk for an asset is

A. Original acquisition cost

B. Replacement cost

C. Book value as of premium payment date

D. Acquisition cost less accumulated depreciation and impairment losses

27. The use of reproduction value method is appropriate for the following, EXCEPT

A. When calculating value of new technology or start-up businesses

B. Ventures with highly specialized equipment

C. Companies that are highly reliant with intangible assets

D. Businesses that use equipment supplied by third-party manufacturer

VALUATION CONCEPTS.FINAL EXAM. Page 3 of 5

28. What method is appropriate in valuing assets which do not have available external information even after
consulting with appraisers?

A. Book value method

B. Replacement value method

C. Reproduction value method

D. Liquidation value method

29. When determining replacement costs of assets, valuators tend to consult with ________

A. Actuaries

B. Board of Directors

C. Appraisers

D. Equity Analysts

30. The net book value of assets may also represents

A. Total shareholder’s equity

B. Total assets

C. Total liabilities

D. Total long-term debt

Provide computations for the following problems (2 Points each)

31. Samsan Company, a start-up business which developed its own data imaging algorithm is trying to estimate
the value of their company. Their latest financial statements showed the following information :
Current Assets P 1,250,000
Non-current Assets 4,000,000
Current Liabilities 850,000
Non-Current Liabilities 250,000

Part of their non-current assets is a patent for the technology they developed which has a recorded balance of P
2,500,000. An equity investor is looking at buying the company.

Samsan Company tried to trace back the costs of developing the patent and determined that the reproduction
cost of the particular patent is P 3,000,000.
What is the book value of Samsan Company?
A. P 5,250,000
B. P 5,000,000
C. P 4,150,000
D. P 4,000,000

SOLUTION:

BV = Total Assets - Total Liabilities

= (1,250,000 + 4,000,000) -(850,000 + 250,000)
= 5,250,000 - 1,100,000
= 4,150,000

32. Refer to No. 31, What is the reproduction value of Samsan Company?
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A. P 5,000,000
B. P 4,650,000
C. P 4,150,000
D. P 4,000,000

SOLUTION:

Current Assets 1,250,000

Non-current Assets 4,000,000
Add: (3,000,000 – 2,500,000) 500,000
Current Liabilities (850,000)
Non-Current Liabilities (250,000)
Reproduction Value 4,650,000

33. As of December 31, 2020, Cocoa Corporation reported the following items in the balance sheet .
Cash P 240,000
Receivables 520,000
Inventory 350,000
Property and Plant 3,000,000
Equipment 850,000
Accounts Payable 400,000
Short-term Notes Payable 500,000
Long-term Debt 1,000,000
Weighted average of
Outstanding shares in 2020 250,000

Cocoa Corporation contracted with a third-party appraiser to determine how much is the replacement cost of its
assets. Based on the report of the appraiser, the property and plant has replacement cost of 125% of its reported
value. On the other hand , the equipment only commands replacement cost of 70% of its value. According to the
appraiser, the equipment was designed using an old technology, thus, the lower replacement cost. Other assets
and liabilities are valued fairly.
How much is the non-current assets reflected in the books of Cocoa Corporation as of December 31, 2020?
A. P 4,960,000
B. P 3,850,000
C. P 2,850,000
D. P 2,150,000

SOLUTION:

Property and Plant 3,000,000

Equipment 850,000
Total Non-Current assets 3,850,000

34. How much is the book value per share of Cocoa Corporation as of December 31, 2020?
A. P 19.84
B. P 16.24
C. P 15.84
D. P 12.24

SOLUTION:
Current Assets 1,110,000
Non-current Assets 3,850,000
Current Liabilities (400,000)
Non-Current Liabilities (1,500,000)
Book Value 3,060,000
Divide: Outstanding Shares 250,000
Book Value per share 12.24

35. How much is the replacement value of the non-current assets of Cocoa Corporation?
A. P 3,345,000
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B. P 3,850,000
C. P 4,345,000
D. P 5,455,000

SOLUTION:

Property and Plant 3,000,000

% of affecting item 125%
Adjusted amount 3,750,000
Equipment 850,000
% of affecting item 70%
Adjusted amount 595,000
Replacement value of the non-current assets
(3,750,000+595,000) 4,345,000

36. Hercules Company reported the following balances as of December 31, 2019:
Current Assets P 750,000
Non-current Assets 1,400,000
Current Liabilities 400,000
Non-current Liabilities 500,000
Outstanding ordinary shares 1,000,000 shares
In 2020, analytics showed that current assets increased by 25% , non-current assets increase by 20% and
current liabilities by 10%. Half of the non-current liabilities were also paid. At the beginning of 2020, additional
250,000 shares were issued by Hercules Company
How much is the book value of Hercules Company as of December 31, 2019?
A. P 1,250,000
B. P 1,650,000
C. P 2,150,000
D. P 3,050,000

SOLUTION:
Current Assets 750,000
Non-current Assets 1,400,000
Current Liabilities (400,000)
Non-Current Liabilities (500,000)
Book Value 1,250,000

37. How much is the book value per share in 2019?

A. P 3.05
B. P 2.15
C. P 1.65
D. P 1.25

SOLUTION:

Current Assets 750,000

Non-current Assets 1,400,000
Current Liabilities (400,000)
Non-Current Liabilities (500,000)
Book Value 1,250,000
Divide: Outstanding Shares 1,000,000
Book Value 1.25

38. How much is the net working capital as of December 31, 2020?
A. P 247,500
B. P 350,000
C. P 497,500
D. P 937,500
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SOLUTION:
Current Assets 750,000
25% Increase 187,500
Adjusted Amount 937,500
Current Liabilities 400,000
10% Increase 40,000
Adjusted Amount 440,000
Net Working Capital 497,500
(937,500-440,000)

39. How much is the net book value as of December 31, 2020?
A. P 1,927,500
B. P 1,250,000
C. P 1,000,000
D. P 1,500,000

SOLUTION:
Adjusted Current Assets 937,500
Adjusted Non-current Assets (1,400,000x20%) 1,680,000
+1,400,000
Adjusted Current Liabilities (440,000)
Adjusted Non-Current Liabilities (500,000/2) (250,000)
Book Value 1,927,500

40. How much is the book value per share as of December 31, 2020?
A. P1.93
B. P 1,25
C. P 1,54
D. P 1.00

SOLUTION:

Adjusted Current Assets 937,500

Adjusted Non-current Assets (1,400,000x20%) 1,680,000
+1,400,000
Adjusted Current Liabilities (440,000)
Adjusted Non-Current Liabilities (500,000/2) (250,000)
Book Value 1,927,500
Divide: Outstanding Shares (1Million + 250,000) 1,250,000
Book Value per share 1.54

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