Set 4 FI 18 Valuations: Asset-Based Approaches

Question 1

4 steps of a liquidation approach

Answer 1

1. adjust assets to NRV
2. deduct liabilities
3. calculate corporate tax owing on sale of assets to determine POD
4. calculate personal income tax on POD

whatever is left

Question 2

3 steps of a adjusted net asset approach

Answer 2

1. assets and liabilities adjusted to FMV
2. forgone tax shield is deducted
3. latent taxes and selling costs from selling assets are deducted. these include taxes on capital gains and/or recapture

Question 3

how are intangible assets valued in this approach?

Answer 3

anything that is not separately identifiable such as goodwill and deferred should be assigned as nil. UNLESS
- it is separable, it can be divided from other assets and sold, transferred or licensed to another entity
- arises from contractual or legal rights
then a value may be assigned, but requires judgment

Question 4

redundant assets and liabilities

Answer 4

are included

Question 5

what is the price known as for adjusted net asset approach?

Answer 5

floor price - miniumum to be acceptable in a sale

Question 6

what companies is this mostly used for?

Answer 6

holding

Question 7

steps to calculate adjusted net asset approach

Answer 7

• revise assets and liabilities to FV at valuation date
• deduct forgone tax shield
• latent taxes associated with selling assets are deducted. these are taxes that arise upon sale such as recapture / TCG