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Company Valuation

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Analytical Corporate Finance

Part of the book series: Springer Texts in Business and Economics ((STBE))

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Abstract

Company valuation is the core of many corporate finance courses, and it represents one of the most challenging tasks to perform in relation to the analysis of the company financials.

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Author information

Authors and Affiliations

  1. Department of Finance and Accounting, School of Business Administration, American University in Dubai, Dubai, United Arab Emirates

    Angelo Corelli

Authors
  1. Angelo Corelli
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Problems

Problems

  1. 1.

    Assuming we are valuing a going concern, which of the following types of income streams would be most appropriate for valuing the company?

    1. (a)

      Earnings Before Interest and Taxes

    2. (b)

      Free Cash Flows

    3. (c)

      Operating Income After Taxes

    4. (d)

      Price to Earnings Ratio

  2. 2.

    The following estimates have been made for the year 2006:

    Operating Income (EBIT): 6000 €

    Depreciation: 500 €

    Cash Taxes to be paid 950 €

    Income from non operating assets: 60 €

    No capital investments or changes to working capital are expected. Based on this information, the projected free cash flows for 2006 are:

    1. (a)

      5610 €

    2. (b)

      4550 €

    3. (c)

      4490 €

    4. (d)

      6550 €

  3. 3.

    Marshall Company is considering acquiring Lincoln Associates for 600,000 €. Lincoln has total outstanding liabilities valued at 200,000 €. The total purchase price for Marshall to acquire Lincoln is:

    1. (a)

      200,000 €

    2. (b)

      400,000 €

    3. (c)

      600,000 €

    4. (d)

      800,000 €

  4. 4.

    The Valuation Process will often analyze several value drivers in order to understand where value comes from. Which of the following value drivers would be least important to the valuation?

    1. (a)

      Return on Invested Capital

    2. (b)

      Earnings per Share

    3. (c)

      Cash Flow Return on Investment

    4. (d)

      Economic Value Added

  5. 5.

    You have been asked to calculate a terminal value for a valuation forecast. The normalized free cash flow within the forecast is 11,400 €. A nominal growth rate of 3 % will be applied along with a weighted average cost of capital of 15 %. Using the dividend growth model, the terminal value that should be added to the forecast is:

    1. (a)

      78,280 €

    2. (b)

      86,200 €

    3. (c)

      95,000 €

    4. (d)

      97,850 €

  6. 6.

    Information from a valuation model for Gemini Corporation is summarized below:

    Total present value of forecasted free cash flows: 150,000 €

    Terminal value added: 450,000 €

    Total present value of non-operating assets: 20,000 €

    Total present value of outstanding debts: 120,000 €

    If Gemini has 20,000 shares of outstanding stock, the value per share of Gemini is:

    1. (a)

      15.00 €

    2. (b)

      25.00 €

    3. (c)

      30.00 €

    4. (d)

      35.00 €

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© 2016 Springer International Publishing Switzerland

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Corelli, A. (2016). Company Valuation. In: Analytical Corporate Finance. Springer Texts in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-39549-4_8

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