Question #25

Reading: Reading 24 Private Company Valuation

PDF File: Reading 24 Private Company Valuation.pdf

Page: 13

Status: Incorrect

Correct Answer: B

Your Answer: C

Part of Context Group: Q25-26 First in Group
Shared Context
- One valuation method that Smith is considering for Timber Industries involves using a growing perpetuity formula to estimate the value of intangible assets, and then adding this value to the values of working capital and fixed assets. This method is most accurately described as the: A) free cash flow method. B) excess earnings method. C) capitalized cash flow method.
Question
The asset-based approach to private company valuation that Smith is considering for Timber Industries is most likely to be appropriate in the case of a:
Answer Choices:
A. finance firm such as a bank
B. mature company with many intangible assets
C. firm with strong profits and growth potential
Explanation
The asset-based approach is usually not used for most going concerns, but is appropriate for troubled firms, finance firms, investment companies, firms with few intangible assets, and natural resource firms. It values equity as the asset value of a firm minus the debt value of the firm.
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