{"id":7583,"date":"2022-06-10T13:22:42","date_gmt":"2022-06-10T07:52:42","guid":{"rendered":"https:\/\/ncert-solutions.guru\/?p=7583"},"modified":"2022-06-14T14:41:36","modified_gmt":"2022-06-14T09:11:36","slug":"business-valuation-questions-and-answers","status":"publish","type":"post","link":"https:\/\/ncert-solutions.guru\/business-valuation-questions-and-answers\/","title":{"rendered":"Business Valuation Questions and Answers"},"content":{"rendered":"
SECTION – A<\/span><\/p>\n Question 1. Question 2. Question 3. SECTION – B<\/span><\/p>\n Question 1. (b) For unquoted companies, when:<\/p>\n (c) For subsidiary companies, when the group’s holding company is negotiating the sale of the subsidiary to a management buyout or to an external buyer.<\/p>\n (d) For any company, where a shareholder wishes to dispose of his or her holding.<\/p>\n (e) For any company, when the company is being broken up in a liquidation situation or the company needs to obtain finance, or re-finance current debt.<\/p>\n (B) Information requirements for valuation: There is wide range of information that will be needed in order to value a business.<\/p>\n Question 2. The net value of assets, determined so has to be divided by number of equity shares for finding out the value of share. Thus the value per share can be determined by using the following formula: Value Per Share=(Net Assets- Preference Share Capital)\/Number Of Equity Shares.<\/p>\n Question 3. (b) Dividend Yield: Question 4. Step 2: To find out the capitalized value Step 3: To find out value per share Question 5. Weak form efficiency: Semi-strong form efficiency: Strong form efficiency: What are the different types of efficiencies in the context of the operation of financial markets? 2. Operational efficiency: Operational efficiency can be achieved if there is open competition between brokers and other market participants so that transaction costs are kept as low as possible.<\/p>\n 3. Informational processing efficiency: Information processing efficiency of a stock market can be achieved if the stock market is able to price stocks and shares fairly and quickly because market prices of all securities reflect all the available information.<\/p>\n Question 6. Business Valuation Questions and Answers SECTION – A Question 1. What is valuation\/business valuation? Answer: Valuation is the process, of determining the current worth of an asset or a company; there are many techniques used to determine value. An analyst placing a value on a company looks at the company’s management, the composition of its …<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[847],"tags":[1487,1486,1484,1485],"_links":{"self":[{"href":"https:\/\/ncert-solutions.guru\/wp-json\/wp\/v2\/posts\/7583"}],"collection":[{"href":"https:\/\/ncert-solutions.guru\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ncert-solutions.guru\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ncert-solutions.guru\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/ncert-solutions.guru\/wp-json\/wp\/v2\/comments?post=7583"}],"version-history":[{"count":1,"href":"https:\/\/ncert-solutions.guru\/wp-json\/wp\/v2\/posts\/7583\/revisions"}],"predecessor-version":[{"id":7584,"href":"https:\/\/ncert-solutions.guru\/wp-json\/wp\/v2\/posts\/7583\/revisions\/7584"}],"wp:attachment":[{"href":"https:\/\/ncert-solutions.guru\/wp-json\/wp\/v2\/media?parent=7583"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ncert-solutions.guru\/wp-json\/wp\/v2\/categories?post=7583"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ncert-solutions.guru\/wp-json\/wp\/v2\/tags?post=7583"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nWhat is valuation\/business valuation?
\nAnswer:
\nValuation is the process, of determining the current worth of an asset or a company; there are many techniques used to determine value. An analyst placing a value on a company looks at the company’s management, the composition of its capital structure, the prospect of future earnings and market value of assets.<\/p>\n
\nWhat is Share?
\nAnswer:
\nShares are units of ownership interest in a corporation or financial asset that provide for an equal distribution in any profits, if any are declared, in the form of dividends. The two main types of shares are common shares and preferred shares.<\/p>\n
\nWhat is the efficient market hypothesis?
\nAnswer:
\nThe efficient market hypothesis is the hypothesis that the stock, market reacts immediately to all the information that is available. Three forms of the efficient market hypothesis can explain the theory behind share price movements.<\/p>\n
\nExplain the Nature and purpose of the valuation of business.
\nAnswer:
\nThe Nature and Purpose of Business Valuations:
\n(A) When valuations are required – A share valuation will be necessary:
\n(a) For quoted companies, when there is a takeover bid and the offer price is an estimated fair value in excess of the current market price of the shares.<\/p>\n\n
\n
\nExplain the Net Assets Method of valuation of Share.
\nAnswer:
\nNet assets method of valuation of share:
\nUnder this method, the net value of assets of the company are divided by the number of shares to arrive at the value of each share. For the determination of net value of assets, it is necessary to estimate the worth of the assets and liabilities. The goodwill as well as non-trading assets should also be included in total assets. The following points should be considered while valuing of shares according to this method:<\/p>\n\n
\nExplain the Market Value Method of valuation of Share.
\nAnswer:
\nMarket value method of valuation of shares:
\nThe expected rate of return in investment is denoted by yield. The term “rate of return” refers to the return which a shareholder earns on his investment. Further it can be classified as (a) Rate of earning and (b) Rate of dividend. In other words, yield may be earning yield and dividend yield.
\n(a) Earning Yield:
\nUnder this method, shares are valued on the basis of expected earning and normal rate of return. The value per share is calculated by applying following formula:
\nValue Per Share = (Expected rate of earning\/Normal rate of return) x Paid up value of equity share
\nExpected rate of earning – (Profit after tax\/paid up value of equity share) x 100<\/p>\n
\nUnder this method, shares are valued on the basis of expected dividend and normal rate of return. The value per share is calculated by applying following formula:
\nExpected rate of dividend – (profit available for dividend\/paid up equity share capital) x 100
\nValue per share = (Expected rate of dividend\/normal rate of return) x 100<\/p>\n
\nExplain the Earning Capacity Method of valuation of Share.
\nAnswer:
\nEarning capacity method of valuation of shares:
\nUnder this method, the value per share is calculated on the basis of disposable profit of the company. The disposable profit is found out by deducting reserves and taxes from net profit. The following steps are applied for the determination of value per share under earning capacity:
\nStep 1: To find out the profit available for dividend<\/p>\n
\nCapitalized Value =( Profit available for equity dividend\/Normal rate of return) x 100<\/p>\n
\nValue per share = Capitalized Value\/Number of Shares
\nThe valuation of debt and other financial assets<\/p>\n
\nWrite short note on efficient market hypothesis.
\nAnswer:
\nThe efficient market hypothesis is the hypothesis that the stock market reacts immediately to all the information that is available. Three forms of the efficient market hypothesis can explain the theory behind share price movements. These are:<\/p>\n
\nWeak form efficiency implies that prices reflect all relevant information about past price movements and their implications. Share prices reflect all available information about past changes in the share price. Since new information arrives unexpectedly, changes in share prices should occur in a random fashion. Technical analysis to study past share price movements will not give anyone an advantage, because the information they use to predict share prices is already reflected in the share price.<\/p>\n
\nSemi-strong form implies that share prices reflect all relevant information about past price movement and their implications, and all knowledge that is available publicly. Therefore, an individual cannot beat the market by reading the newspaper or annual reports since the information contained in these will be reflected in the share price.<\/p>\n
\nThis implies that prices reflect past price movements, publicly available knowledge and inside knowledge.<\/p>\n
\n1. Allocative efficiency: Allocative efficiency can be achieved if financial markets allow funds to be directed towards firms that make the. most productive use of them.<\/p>\n
\nState the features of efficient market.
\nAnswer:
\nFeatures of an efficient market:<\/p>\n\n