Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
20 Cards in this Set
- Front
- Back
|
In general, what engagements call for a Conclusion of Value vs a Calculated Value?
|
-Tax (conclusion of value)
-Tax planning (calculated value) -Litigation expert (both) -Litigation consulting (calculated value) -Transactional (both) -Transactional 3rd party (conclusion of value) -DOL (conclusion of value) -Fairness opinion (conclusion of value) |
|
|
What is the formula for present value factor of $1.
|
(1 + i)^N
Note: Take the benefit stream for the year and divide by the above factor. -OR- 1/(1 + i)^N Note: Take benefit stream and multiply by above factor. |
|
|
What is the formula for present value factor of $1 for mid-period discounting?
|
(1 + i)^(N-0.5)
Note: Assumes cash flow is recieved evenly over the year. |
|
|
What is the formula for the Gordon Growth Model in capitalizing earnings?
|
PV=CF(1+g)/k-g
Where: k = discount rate g = long-term growth rate CF = cash flow in period immediately preceding valuation date. |
|
|
Under the dividend payout method, what is the company value given:
Dividend payout ratio = $250,000 x 30% Dividend = $75,000 Dividend yield rate of 5 comparable companies over the last 5 years is 7.5% |
$75,000/.075 = $1,000,000
|
|
|
What is the value of the company under the Excess Earnings/Treasury Method given:
$250,000 - 5 yr avg net income $980,000 - GAAP avg net assets $1,050,000 - Adjusted net assets 12% - Industry avg ROE 29.69% - Intangible cap. rate $1,050,000 - Companies adjusted net assets. |
$250,000
-117,600 ($980,000 x 12%) =132,400 $446,000 (132,400/29.69%) +1,050.000 =$1,496,000 (Value of business) |
|
|
Calculate WACC given:
1. Book value LTD = $300,000 2. Book value common = $700,000 3. Interest rate LTD = 5% 4. Cost of Eq (Build up method) = 22% 5. Tax rate = 40% 6. Net cash flow invested capital = $250,000 7. Assumed growth rate = 3% |
18.2%
See Module 2 page 5-24 for calculation |
|
|
Calculate the value of the business under the discounted earnings/cash flow method given:
Projected earnings: Yr 1 $10,000 (yr aftr val date) Yr 2 $40,700 Yr 3 $80,600 Yr 4 $110,100 Yr 5 $150,300 Discount & cap rate are both 24% |
PV Yrs 1-5 $175,052
PV Terminal $213,614 Bus Value $388,666 Terminal value is based on Yr 5 earnings. |
|
|
What are the three differences betweent the excess earning (treasury & reasonable rate) methods?
|
1. Treasury method (after-tax)
Reasonable rate method (pre-tax) 2. Treasury Method (ROA % from industry average) Reasonable Rate (ROA % from reasonable rate based on risk & liquidity of underlying assets) 3. Treasury Method (apply rate to avg net assets) Reasonable rate (apply rate to latest years adjusted net assets) |
|
|
What are the 3 basic methods for valuing intangibles?
|
1. Excess earnings / Cap Rate
2. Excess earnings x multiple 3. PV of excess earnings + discounted terminal value |
|
|
How would a favorable lease be valued?
|
FMV of monthly lease payments
-Actual lease payments =Monthly benefit Monthly benefit over lease term is discounted to PV. |
|
|
In calculating terminal value, what is the formula in the 5th year, when earnings have stabilized?
|
Net Income (5th year)
x 1.03 (assuming 3% growth) = Net Income (5th year adjusted) / Capitalization Rate = Terminal Value x PV Factor (5th Year) =PV of Terminal Value |
|
|
In calculating WACC, how does capital structure differ under the FMV Standard vs. Investment Standard? (Assuming valuation of a controlling interest)
|
-FMV Standard = Industry avg capital structure
-Invesment Standard = Use buyer's desired capital structure. |
|
|
In calculating WACC, is the book value or market value of equity used?
|
-Market value is used.
|
|
|
Convert a weighted average P/E ratio of 16.2 to a percentage (capitalization rate)
|
Answer: 1/16.2=6.17%
|
|
|
What is the Adjusted Net Assets Method? For what types of valutions is it used?
|
-Book value of assets are adjusted to FMV and then reduced by FMV of any recorded or unrecorded liabilities.
-Used to value non-operating businesses such as investment companies or holding companies or in instances when business is generating consistent losses. May set a floor if liquidaion value is used. |
|
|
In the capitalization of earnings method, how are non-operating assets treated?
|
-Any income or expense items generated from non-operating related assets and liabilities should be removed prior to applying this method. The net FMV of the non-operating assets is then added back to the capitalized earnings to derive a total business value prior to discounts or premiums.
|
|
|
Given a per share value of $58.05, calculate the adjusted per share value after applying a minority interest discount of 20% and a marketibility discount of 28%.
|
Per share beg. $58.05
DLOC -20% DLOC Disc. (11.61) Adjusted $46.44 DLOM -28% DLOM Disc. (13.00) Adjusted $33.44 |
|
|
When valuing a less than 100%interest in a company, how is the final value calculated?
|
-Apply discounts to per share value and multiply by number of shares being valued. eg 100,000 shares o/s = 46,000 for a 46% interest being valued.
|
|
|
Under the Van Fleet Model, how is tax affecting an S Corp accomplished?
|
-Compares the benefits available to a C Corp shareholder (dividends & appreciation net of 15% cap gains tax). This is compared to distributions to S Corp shareholders less individual tax on S Corp K-1 income and capital appreciation. The two are equalized through a SEAM adjustment to the S Corp which is part of the DLOM. See 6-25 module 2.
|
