Valuations

Question 1

Fair Market Value

Answer 1

Highest price available
open n unrestricted mkt
informed n prudent parrties
act at arms length
blah blah

Question 2

Questions to ask for valuation

Answer 2

What must be valued?
what approach?
going concern?
are there active operations?

Question 3

Asset Based

Answer 3

Liquidation: Orderly (voluntary) or forced

Question 4

Adjusted Net Asset Approach

Answer 4

Going Concern but no active operations

is “floor value” for company with active operations

Question 5

Replacement Cost

Answer 5

actual cost to replace

Current value less liabilities n tax consequences

Question 6

Income Based Approach

Answer 6

CFs are normalized so remove abnormal items or things that new owner wouldnt do

Question 7

Capitalized CF Approach

Answer 7

active operations
excess earnings
consistent CFs and based on historical with ability to predict CFs

Question 8

Discounted CF Approach

Answer 8

if past not indicative of future
mgmt able to prepare reliable info
so start ups so not steady

Question 9

Capitalized Earnings Approach

Answer 9

based on historical earnings
Multiply earnings with a multiplier 1/2
Divide by cap rate 2%

Question 10

Discounted Earnings Approach

Answer 10

merger n acquisitions
future volatile before becoming steady
So discount separately

Question 11

Market Based Approach

Answer 11

going concern n info is available that is comparable

Question 12

What needs active operation s?

Answer 12

Income based and Net asset is no active ops

Question 13

Value Tangible n Intangible Assets

Answer 13

Replacement Cost Approach
Not reliable + comparable mkt data + no CF generated
Use current amts

Question 14

Interest Swap

Answer 14

Pay fixed and receive a floater

Question 15

Call n put

Answer 15

call = buy
put = sell