Reading 35: Equity Valuation: Applications and Processes-LOS valuation, contrast, 2011, class, definition

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Session 10: Equity Valuation: Valuation Concepts
Reading 35: Equity Valuation: Applications and Processes

LOS b: Explain the going concern assumption, contrast a going concern value to a liquidation value, and identify the definition of value most relevant to public company valuation.

 

 

The present value of expected future cash flows is the firm's:

A) terminal value.

B) liquidation value.

C) going-concern value.

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Going-concern value is the present worth of expected future cash flows generated by a business.

 

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A valuation of a firm based on the assumption that the firm will continue to operate is referred to as its:

A) operating value.

B) going-concern value.

C) status quo value.

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The going-concern value is based on the assumption that the firm will continue to operate and the firm’s value is the present value of its future dividends.

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A comparison between a firm’s going-concern valuation and its liquidation value will show that the going-concern value will always be:

A) equal to the present value of the expected continued operation of the firm.

B) greater than the liquidation value.

C) less than the liquidation value.

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It is not possible to state the relationship between the going-concern value and the liquidation value without examining the prospects for the firm and the current value of the assets. The going-concern value is equal to the present value of the expected dividends arising from continued operation.

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Liquidation value is the:

A) market value of the total assets less the market value of the total liabilities.

B) present value of future cash flow less the possible liquidation cost.

C) cash generated by terminating a business, selling its assets, and repaying liabilities.

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Liquidation value is the cash generated by terminating a business, selling all of its assets, and repaying liabilities.

土豆妮

A valuation of a firm based on the current market price of its assets - liabilities is referred to as the firm’s:

A) going-concern value.

B) operating value.

C) liquidation value.

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The liquidation value is based on the assumption that the firm will cease to operate and all of its assets will be sold to repay liabilities.