VALUCON REVIEWER MODULE 5
TRUE/FALSE
1. Value pertains to how much a particular object is worth to a particular set of eyes.
TRUE
2. Value, in the point of view of corporate shareholders relates to the difference between
cash inflows generated by an investment and the cost associated with the capital
invested which captures both time value of money and risk premium. TRUE
3. Valuation techniques may differ across different assets, but all follows similar
fundamental principles that drives the core of these principles that drives the core of
these approaches. TRUE
4. Merger is the general term which describes the transaction wherein two companies
are combined to form a wholly new entity. TRUE
5. Fair market value is the price expressed in terms of cash equivalents, at which
property would change hands between hypothetically willing and able buyer and a
hypothetically willing and able seller, acting at arm's length in an open and unrestricted
market, when neither is under compulsion to buy or sell and when both have reasonable
knowledge of the relevant facts. TRUE
6. Valuation includes the use of forecasts to come up with reasonable estimate of value
of an entity's assets or its equity. TRUE
7. Intrinsic value refers to the value of any asset based on the assumption assuming
there is a hypothetically complete understanding of its investment characteristics. TRUE
8. Businesses treat capital as a scarce resource that they should compete to obtain and
efficiently manage. TRUE
9. Methods to value for real estate may be different on how to value an entire business.
TRUE
10. Liquidation value is the net amount that would be realized if the business is
terminated and the assets are sold piecemeal. TRUE
11. Fundamental analysts are persons who are interested in understanding and
measuring the intrinsic value of a firm. TRUE
12. In the corporate setting, the fundamental equation value is grounded on the
principle that Alfred Marshall popularized - a company creates value if and only if the
return on capital invested exceeds the cost of acquiring capital. TRUE
13. Valuation is an estimation of an asset's value based on variables perceived to be
related to future value investment returns, on comparisons with similar assets, or, when
relevant, on estimates of immediate liquidation proceeds. TRUE
14. Valuation is also important to businesses because of legal and tax purposes. TRUE
15. 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 process. FALSE
16. Value is impacted by liquidity. TRUE
17. Definition of value may vary depending on the context. Different definitions of value
include intrinsic value, going concern value, liquidation value and fair market value.
TRUE
18. Going concern firm value is determined under the going concern assumption. The
going concern assumption believes that the entity will continue to do its business
activities into foreseeable future. TRUE
19. As valuation mostly deals with projections about future events, analysts should hone
their ability to balance and evaluate different assumptions used in each phase of the
valuation exercise, assess validity of available empirical evidence and come up with
rational choices that aligns with the ultimate objective of the valuation activity. TRUE
20. An acquisition usually has two parties: the buying firm and the selling firm. The
buying firm needs to determine the fair value of the target company prior to offering a
bid price. TRUE
21. Spin-off is separating a segment or component business and transforming this into a
separate legal entity whose ownership will be transferred to share holders. TRUE
22. Corporate finance mainly involves managing the firm's capital structure, including
funding sources and strategies that the business should pursue to maximize firm value.
TRUE
23. Information Traders are trades that 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 predict how
the market will react based on this. TRUE
24. Divestiture is the sale of a major component or segment of a business (e.g. brand or
product line) to another company. TRUE
25. Fundamentals refer to the characteristics of an entity related to its financial strength,
profitability or risk appetite. TRUE
26. Top-down forecasting approach - forecasts starts from international or national
macroeconomic projections with utmost consideration to industry specific forecasts.
TRUE
27. Activity investors usually do "takeovers" - they use their equity holdings push old
management out of the company and change the way company is being run. FALSE
28. Synergy can be attributable to more efficient operations, cost reductions, increased
revenues, combined products/markets or cross-disciplinary talents of the combined
organization. FALSE
29. Chartists relies on the concept that stock prices are significantly influenced by how
investors think and act. Chartists rely on available trading KPIs such as price movements,
trading volume, short sales - when making their investment decisions. TRUE
30. Leverage buyout is the acquisition of another business by using significant debt
which uses the acquired business as a collateral. TRUE
MULTIPLE CHOICE
1. The relevance of valuation in _______________ largely depends on the investment
objectives of the investors or financial managers managing the investment portfolio.
PORTFOLIO MANAGEMENT
2. ___usually has two parties: the buying firm and the selling firm. The buying firm needs
to determine the fair value of the target company prior to offering a bid price. On the
other hand, the selling firm (or sometimes, the target company) should have a sense of
its firm value as well as to gauge reasonableness of bid offers. Spin-off; Divestiture;
Merger; ACQUISITION
3. ___refer to the characteristics of an entity elated to its financial strength, profitability,
or risk appetite. Technical characteristics; Intrinsic value; FUNDAMENTALS;
Financial value
4. This refers to the value of any asset based on the assumption that there is
hypothetically complete understanding of its investment characteristics. Fair market
value; INTRINSIC VALUE; Going concern value; Liquidation value.
5. This refers to the possible range of values where the real firm value lies. Risk of the
unknown; UNCERTAINTY; Volatility; Solvency.
6. This pertains to how much a particular object is worth a particular set of eyes. VALUE;
Cost; Price; Fundamentals
7. Valuation places great emphasis on the ___that are associated in the exercise. Due
diligence; Human reasoning; Professional skepticism; PROFESSIONAL
JUDGEMENT.
8. __ is particularly relevant for companies that are experiencing severe financial
distress. Going concern value; Intrinsic value; LIQUIDATION VALUE; Fair market
value.
9. Separating a segment or component business and transforming it into a separate
legal entity whose ownership will be transferred to shareholders. Mergers;
Acquisitions; SPIN-OFF; Divestiture
10. Which key principles in valuation refers to business value tending to change every
day as transaction happens? The value of a business is defined only at a specific
portion of time; Value varies based on the ability of the business to generate
future cash flows; Market dictates the appropriate rate of return for investors;
Firm value can be impacted by underlying net tangible assets.
11. __ tend to look for companies with good growth prospects that have poor
management. ACTIVIST INVESTORS; Fundamental Analysts; Chartists;
Information Traders
12. According to the CFA Institute, ____________ 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.
VALUATION; appraisal; fundamentals; price estimation
13. They believe that these metrics imply investor psychology and will predict future
movements in stock prices. Information Traders; Activist Investors; CHARTISTS;
Fundamental Analysts
14. Value is determined under the going concern assumption. Liquidation value;
Intrinsic value; GOING CONCERN VALUE; Fair market value
15. One of the major factors linked to the value of business that shows what are the
business risks involved in running the business. EMBEDDED RISKS; Current
Operations; Future Prospects; All of the above
16. The value of a business can be basically liked to three major factors, except:
current operations; future prospects; embedded risks; NONE OF THE ABOVE.
17. The price expressed in terms of cash equivalents, at which property would change
hands between a hypothetical willing and able buyer and a hypothetical willing and able
seller, acting at arm's length in an open and unrestricted market, when neither is under
compulsion to buy or sell and when both have reasonable knowledge of the relevant
facts. FAIR MARKET VALUE; Going concern value; Intrinsic Value; Liquidation
value
18. These are persons who are interested in understanding and measuring the intrinsic
value of a firm. Chartists; FUNDAMENTAL ANALYSTS; Information Traders;
Activist Investors
19. One major factor linked to the value of business that shows how is the operating
performance of the firm in the recent year. CURRENT OPERATIONS; Future
prospects; Embedded risks; All of the above.
20. One of the major factors linked to the value of business that reflects is the long-term
and strategic decision of the company. Current operations; FUTURE PROSPECTS; All
of the above; Embedded risks.
21. Sale of a major component or segment of a business (e.g. brand or product line) to
another company is called: spin-off; DIVESTITURE; mergers; acquisitions.
22. Under portfolio management, the following activities can be performed through the
use of valuation techniques, except: Stock Selection; Deducing Market
Expectation; BOTH CAN BE PERFORMED; None of the above.
23. __ deals with prioritizing and distributing financial resources to activities that
increases firm value by appropriate planning and implementation of resources, while
balancing profitability and risk appetite. Financial Management; Portfolio
Management; Risk Management; CORPORATE FINANCE
24. Which key principles in valuation refers to general concepts for most valuation
techniques put emphasis on future cash flows except for some circumstances where
value can be better derived from asset liquidation? The value of a business is
defined only at a specific point in time; Market dictates the appropriate rate of
return for investors; Firm value can be impacted by underlying net tangible
assets; Value varies based on the ability of business to generate future cash
flows.
25. General term which describes the transaction of two companies combined to form a
wholly new entity. Divestiture; Acquisitions; MERGERS; Spin-off
26. Acquisition of another business by using significant debt which uses the acquired
business as a collateral. LEVERAGED BUY-OUT; Acquisitions; Divestiture.
27. __ assumes that the combined value of two firms will be greater than the sum of
separate firms. ___ can be attributable to more efficient operations, cost reductions,
increased revenues, combined products/markets or cross-disciplinary talents of the
combined organization. SYNERGY; Volatility; Uncertainty; Control
28. The underlying belief is that ____________ are more adept in guessing or getting new
information about firs and they can predict how the market will react based on this.
Hence, ____________ correlate value and how information will affect this value. Chartists;
Activist Investors; Fundamental Analysts; INFORMATION TRADERS
29. Generally, the valuation process considers these steps, except: understanding the
business; forecasting financial performance; preparing valuation model based
on forecasts; NONE OF THE ABOVE.
30. Which key principles in valuation refers to market forces are constantly changing and
they normally provide guidance of what rate of return should investors expect from
different investment vehicles in the market? Firm value can be impacted by
underlying net tangible assets; Value varies based on the ability of business to
generate future cash flows; The value of a business is defined only at a specific
point in time; Market dictates the appropriate rate of return for investors.
VALUCON REVIEWER MODULE 6
TRUE/FALSE
1. Equity has been defined by the industry as transactions that would yield future
economic benefits as a result of past transactions. FALSE
2. The value of investment opportunities is highly dependent on the value that the asset
will generate from now until the future. TRUE
3. In determining the value of equity, it is necessary to value the asset first. This method
is known as asset-based valuation. TRUE
4. Brown field investment are those that started from scratch while green field
investment are those opportunities that either partially or fully operational. FALSE
5. Discounted cash flows analysis is meticulous but more conservative method or
approach that can be used to determine the asset value for it clearly demonstrate the
movement of the transaction. TRUE
6. Theoretically, in valuation since it is more on the economic benefits valuation to
determine the asset value, the pertinent and anticipated outflow must be included.
TRUE
7. Valuation should be kept confidential to allow the company to negotiate a better
position for them to acquire opportunity. TRUE
8. Methodologies on asset-based valuation are discounted cash flows or DCF analysis,
comparable company analysis and economic value added. TRUE
9. Green field investments are those that are already in going concern state, as most
business are in the optimistic perspective that they will grow in the future. FALSE
10. Going concern business opportunities are those business that has a long term into
infinite operational period. TRUE
MULTIPLE CHOICE THEORIES
1. This represents the amount of cash 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. Operating Cash Flows; NET CASH FLOWS TO EQUITY; Net
Cash Flows to Creditors; Net Cash Flows to the Firm
2. This has been defined by the industry as transactions that would yield future
economic benefits as a result of past transactions. Net Assets; Share of Stocks;
Equity; ASSET
3. The beauty if GCBOs is that we already have a reference for their performance either
on similar nature of business or from its historical performance. With this, the risk
indicators can be identified easily and therefore can be quantified accordingly. The
Committee of Sponsoring Organization of the Treadway Commission (COSO) suggest that
risks management principles must be observed as well in doing business and
determining its value. It was noted in their report that the benefits of having a sound
Enterprise-wide Risk Management allows for the company as follows, except:
DECREASE THE OPPORTUNITIES WITH RISK BEING MANAGED WELL.
improve management and distribution of resources across the enterprise.
facilitates the management and identification of the risk factors that affect the
business.
make the business more resilient to abrupt changes.
4. These are business opportunities which are those business that has a long-term into
infinite operational period. GOING CONCERN BUSINESS OPPORTUNITIES; Strategic
Business Opportunities; Perpetual Business Opportunities; Stable Business
Opportunities
5. This represents the value of the company in perpetuity or in a going concern
environment. Infinity value.; Perpetuity value; Salvage value; TERMINAL VALUE.
6. This represents the cash flows which was described in the preceding paragraph. This
is the amount made available to both debt and equity claims against the company. Net
Cash Flows to Equity; Net Cash Flows to Creditors; Operating Cash Flows; NET
CASH FLOWS TO THE FIRM
7. These are investments which are already in the going concern state, as most business
are in the optimistic perspective that they will grow in the future. Blue Field
Investment; Green Field Investment; BROWN FIELD INVESTMENT; Black Field
Investment
8. There are two levels of net cash flows, these are:
NET CASH FLOWS TO THE FIRM AND NET CASH FLOWS TO EQUITY.
net cash flows to the firm and net cash flows to creditors.
net cash flows to the creditors and net cash flows to equity.
none of the above, since there are three levels of net cash flows.
9. DCF Analysis is most applicable to use when the following are available, except:
validated operational and financial information.
CASH FLOW PRICING MULTIPLES.
new quantifiable information.
reasonable appropriated cost of capital or required rate of return.
10. These are the amounts of cash available for distribution to both debt and equity
claim from the business or asset. Financing Cash Flows; Investing Cash Flows;
Operating Cash Flows; NET CASH FLOWS.
MULTIPLE CHOICE PROBLEMS
1. Singapore Ltd., has reported PHP 125,000 revenue where their EBITDA Margin is 45%.
If the taxes are 30% of the EBITDA and the capital expenditure was purchased at PHP
1,500, how much is the Net Cash Flows?
PHP 56,250
PHP 37,875
PHP 46,625
PHP 39,375
2. Cornerstone Inc., reported revenue for the period amounting to PHP 75,200 and
EBITDA Margin of 60%. How much is the operating expenses excluding depreciation?
PHP 0
PHP 75,200
PHP 30,080
PHP 45,120
3. Green Tea Corp. reported the following information: Revenue - PHP 32,500; Operating
Expenses - PHP 16,250. Included in the operating expense are salaries and wages of PHP
1,450, depreciation of PHP 500, and rentals of PHP 275. The interest expense incurred is
PHP 200. How much is the EBITDA for the period?
PHP 16,550
PHP 16,750
PHP 16,250
PHP 14,025
4. If Jupiter Inc.'s market value per share is PHP 275 Million, and the EPS it generated is
PHP 12.50, what is the P/E Ratio?
PHP 32.80
PHP 27.50
PHP 12.50
PHP 20.00 (PHP 22.00)
5. Pluto Corp., a listed company, sells its share in the stock market at PHP 13.50 per
share with EPS of PHP 2.50. Based on the foregoing, how much is the P/E Ratio?
5.00
3.50
5.40
2.50
6. Uranus Co. Ltd reported net income of PHP 2,750 while 8 years ago, net income was
PHP 2,000 only. How much is the compounded annualized growth rate? 4.56% ; 5.25% ;
5.65% ; 4.65%
7. Sunflower Inc., provided the following information: EPS is PHP 25 while P/E Multiple is
2.0. How much is market value per share?
PHP 50.00
PHP 55.00
PHP 50.75
PHP 48.00
8. Malaysia Inc. purchased a capital expenditure amounting to PHP 1,500 and reported
revenue of PHP 125,000 and operating expenses is PHP 50,000. The company incurred
PHP 500 for interest. If the depreciation is PHP 5,000, how much is the net cash flows?
PHP 75,000
PHP 56,150
PHP 57,650
PHP 52,150
9. Leone Inc., a listed corporation, reported on its Statement of Financial Position total
assets of PHP 85 Million. The company maintain its debt ratio of 70% and have
outstanding capital stocks of PHP 1 Million. Given their performance and financial
stability, their stocks were traded at PHP 30 per share. Based on the foregoing, the book
to market ratio of Leone Inc., is:
0.95 ;
0.90 ;
1.00 ;
0.85
10. The management accountant of Yza Belle Inc., has calculated their book value per
share at PHP 6.25. If Yza Belle's 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:
PHP 4.25
PHP 9.90 (PHP 9.19)
PHP 6.25
PHP 10.00
VALUCON REVIEWER MODULE 7
TRUE/FALSE
1. Valuation is a sensitive and meticulous task for every analyst and investors. TRUE
2. Most of the companies hire financial modelers to assist the in determining the value of
GCBOs or any opportunities. TRUE
3. Historical information may be generated from, but not limited to the following: audited
financial statements, corporate disclosures, contracts, and peer information. TRUE
4. Civil engineers are good candidate for financial modeler role given their ability to
understand operational models and design long-term financial strategies. FALSE
5. Historical information must be made available before the financial model is to be
constructed. TRUE
6. Financial Modelling is a sophisticated and confidential activity in a company or for an
analyst. TRUE
7. Financial modelers normally are economists, financial managers, and accountants.
TRUE
8. Information can also be considered as competitive advantage of a company or a
person. TRUE
9. Financial Models are mathematical models designed to aid in coming up with a
recommended decision and at the same time can be used to validate the assumptions
made. TRUE
10. Value of the asset is an important representation f the value of the firm. TRUE
11. Statement of Changes in Stockholder's Equity provides the information on how much
is the claim and dividend background of the company. TRUE
12. The components of the audited financial statements enable the analyst or the
financial modeler to assess the future of the company based on its past performance.
TRUE
13. Statement of Financial Position is used to determine the market value of the assets
and the disclosed stakes of the debt and equity financiers. FALSE
14. Peer information provides more context and even supports the risk identified or will
be assumed in the valuation process. TRUE
15. Statement of Cash Flows illustrate how the company historically financing its
operations and investments. TRUE
16. Peer information and other public information are also essential inputs to the
financial model. TRUE
17. Statement of income are used to determine the historical financial performance.
TRUE
18. Audited financial statements are the most ideal reference for the future performance
of the company. FALSE
19. One of the most important components of the financial statements are the Cover
Pages to the Financial Statements. It provides the summary of important disclosures that
should be considered in the valuation. FALSE
20. Contracts are formal agreements between parties. In valuing the GCBOs, it is
important for the modeler to also know the existing contracts and the covenants. TRUE
MULTIPLE CHOICE THEORIES
1. This component of audited financial statements is used to determine the historical
financial performance.
Statement of Financial Position
STATEMENT OF COMPREHENSIVE INCOME
Notes to the Financial Statements
Statement of Changes in Stockholders' Equity
2. In order to develop financial models, the following steps are needed to be observed.
Which one is incorrect?
Step 3: Determine the Reasonable Cost of Capital
Step 2: Establish Drivers for Growth and Assumptions
STEP 4: MAKE SCENARIOS AND SENSITIVITY ANALYSIS BASED ON THE RESULTS
Step 1: Gather Historical Information and References
3. Which of the following is a correct related to financial modelling?
Operations managers are good candidates for this role given their ability to understand
operational models and design long-term financial strategies.
Most financial modelers do not have extensive financial acumen and vast knowledge and
experience.
MOST OF THE COMPANIES HIRE FINANCIAL MODELERS TO ASSIST THEM IN
DETERMINING THE VALUE OF GCBOS OR ANY OPPORTUNITIES.
Financial modelling is a sophisticated and non-confidential activity in a company or for an
analyst.
4. These is the most ideal reference for the historical performance of the company.
AUDITED FINANCIAL STATEMENTS
Notes to Financial Statements
Statement of Income
Statement of Financial Position
5. In gathering historical information and references, which statement is not correct?
Historical must be made available before the financial model is to be constructed.
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.
Statement of income are used to determine the historical financial performance.
Audited financial statements are the most ideal reference for the historical performance
of the company.
6. This component of audited financial statements is used to illustrate the company
historically financing its operations and investments.
Statement of Financial Position
Statement of Changes in Stockholders' Equity
STATEMENT OF CASH FLOWS
Statement of Comprehensive Income
7.____ provide more context for the future plans and strategies of the company. This will
enable the analysts or the financial modelers to identify the risk about the GCBO and
quantify them accordingly.
Peer information.
CORPORATE DISCLOSURES.
Market prospects.
Notes to the financial statements.
8. This component of audited financial statements is used to determine the book value
of the assets and the disclosed stakes of debt and equity financiers.
Statement of Changes in Stockholders' Equity
Statement of Comprehensive Income
STATEMENT OF FINANCIAL POSITION
Notes to the Financial Statements
9. This component of audited financial statements provides the information on how
much claim an dividend background of the company.
Statement of Cash Flows
Statement of Financial Position
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Statement of Comprehensive Income
10. One of the most important components of the financial statements is the
___________________. It provides summary of important disclosure that should be
considered in the valuation.
Statement of Changes in Stockholders' Equity
Statement of Financial Position
Statement of Comprehensive Income
NOTES TO THE FINANCIAL STATEMENTS
11. _____ growth rate is factored in to serve as a growth driver for the demand of the
product, particularly for the merchandising or manufacturing business.
Consumer Price Index
Inflation
POPULATION
Gross National Product
12. ____ provides more context and even supports the risks identified or will be assumed
in the valuation process. This may be the other analysts, industry experts and other
consultants.
PEER INFORMATION.
Corporate disclosures.
Notes to the financial statements.
Market prospects.
13. Drivers for growth used in financial modelling are suggested to be those validated
and is represented by authorities like government experts. Which government agency is
not a source of these information?
Philippine Statistics Authority
BUREAU OF INTERNAL REVENUE
Bangko Sentral ng Pilipinas
National Economic and Development Authority
14. 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? *
Timeliness and Reliability
Timeliness and Availability.
RELIABILITY AND RELEVANCE
Availability and Relevance
15. The usual growth indicators used in financial modelling are as follows, except:
Gross National Product
CONSUMER PRICE INDEX
Inflation
Population