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FBE 421 MIDTERM EXAM 2024 QUESTIONS WITH 100% SOLVED ANSWERS!!
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FBE 421 MIDTERM EXAM 2024 QUESTIONS WITH 100% SOLVED ANSWERS!!
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FBE 421 MIDTERMEXAM 2024
QUESTIONS WITH
100% SOLVED
ANSWERS!!
FBE 421
Evatee 8/28/24 FBE 421
,FBE 421 MIDTERM EXAM 2024 QUESTIONS
WITH 100% SOLVED ANSWERS!!
(P1 Introduction to Valuation) What is/why study valuation? Answer - -mix of
art and skill
-is a key business skill -- every major business decision has valuation
consequences
-Will need to acquire this skill whether you perform valuations for your
employer, or will need to rely on third party valuations
how are valuations used? Answer - >Common applications include:
‒Determining what a business is worth for purposes of purchase, sale
‒Evaluating restructuring options
‒Evaluating business strategies
‒Selecting stocks
‒Inferring market expectations (what expectations about a company's future
performance are consistent with current trading price?)
‒Rendering fairness opinions
‒Appraising private businesses
‒Evaluating initial public offerings (IPO)
Two valuation myths Answer - <Myth #1: There is a right way to value a firm
‒Truth: There are alternative ways to value a firm and your valuation is
improved by using more than one method
>Myth #2: A good valuation provides a precise estimate of value
‒Truth: There are no precise valuations
, -Your goal is to get your valuation in the "ballpark"
Valuation Approaches Answer - >There are eight basic approaches
1.Discounted cash flow
2.Trading multiples of comparable firms
3.Transaction multiples of comparable acquisitions
4.LBO approach
5.Current market value
6.Book value
7.Liquidation value
8.Replacement cost
Method 1: Discounted Cash Flow Valuation Answer - >The premier financial
model in practice to value a security, a business, or any financial asset is the
discounted cash flow model (DCF Model)
>The concept of the DCF Model is the value of any financial asset is the value of
the cash flows it will generate
>To use discounted cash flow valuation, you need to make judgments as to:
─The life of the asset
(What is the life of a business?)
─The cash flows that will be generated during the life of the asset
─The discount rate to apply to these cash flows to get present value
>PRACTICAL ISSUES
─A business has no finite term
─Future cash flow is unknowable
>>Analysts can't get it right beyond a year or two (neither can managers)
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