Ch. 18 - Valuations - Asset-Based Approaches Flashcards

1
Q

Different asset-based approaches

A
  1. Liquidation
  2. Adjusted net asset
  3. Replacement cost
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2
Q

Liquidation approach - when to use

A
  1. when the entity is not a going-concern
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3
Q

Two types of liquidation scenarios

A
  1. orderly liquidation

2. forced liquidation

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4
Q

Steps in performing a liquidation valuation

A
  1. BS assets adjusted to NRV
  2. liabilities deducted from assets
  3. corp tax liability from selling assets
  4. personal tax liability from distribution
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5
Q

Adjusted net asset approach - when to use

A

either:

  1. the company has no active operations, or
  2. the company has active operations but no excess earnings
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6
Q

Steps in performing adjusted net asset valuation

A
  1. BS items are adjusted to FMV
  2. foregone ta shield is deducted
  3. Latent taxes and selling costs are deducted
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7
Q

Latent taxes calculation

A

income tax rate x taxable capital gain

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8
Q

Replacement Cost approach - when to use

A

often used in insurance claims

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9
Q

Replacement Cost - how to calculate

A
  1. assets adjusted to replacement cost
  2. remove liabilities
  3. remove tax consequences from selling assets
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