IDENTIFICATION

Read carefully the statements on each item. On the space provided after each number, write the
correct word or phrase asked or described in each item in UPPERCASE. Avoid using acronyms. Avoid using
special characters (i.e., dash, hyphen, period, asterisk, etc. Use single space only between words. Misspelled
answers will be marked incorrect. (1 point each)

It is the estimation of an asset’s value based on variables perceived to be related to

future investment. * VALUATION

The firm value is determined in the assumption that the entity will continue its business
activities into a foreseeable future. * GOING CONCERN PRINCIPLE

These persons look at specific investment options and make valuation analysis
reports to portfolio managers. * BUY SIDE ANALYSTS

These persons analyze the true value of the firm by looking at its cash flows, risk
profile and financial characteristics. * FUNDAMENTAL ANALYSTS

These inventors are interested in purchasing shares that are existing and priced at
less than their true value. * VALUE INVESTORS

This corporate event occurs when two companies combined their assets to form a
wholly new entity. * MERGER

These persons are more adept in guessing or getting new information about the firm
and predict how the market will react. They also correlate value with the information. *
INFORMATION TRADERS

Its ultimate goal is to maximize the firm value by appropriate planning and
implementation of resources while balancing profitability and risk appetite. *
CORPORATE FINANCE

This factor refers to the long-term strategic direction of the company. * FUTURE
PROSPECTS

It refers to the potential increase in firm value that can be generated once two firms
merge with each other. * SYNERGY
In portfolio management, this type of investors is more interested to understand
valuation in order to participate intelligently in the stock market. * ACTIVE
INVESTORS

It is one of the Porter’s Five Forces which refers to the intensity of competition
between market players in the industry. * INDUSTRY RIVALRY

One of the strategies to achieve a competitive advantage is to offer the lowest cost
among market players with quality comparable to investors. * COST LEADERSHIP

In this forecasting approach, forecasting starts from the lower levels of the firm. *
BOTTOM UP FORECASTING APPROACH

These analysts do “takeovers” and use their equity holdings to push old management
out of the company and they control the company. * ACTIVIST INVESTORS

This corporate event occurs when a major component or segment is sold to another
company. * DIVESTITURE

These persons rely on available KPIs such as price movements and trading volume
when making investment decisions and they assume that stock price changes and
follow predictable patterns * CHARTISTS

These analysts are either growth investors or value investors. * FUNDAMENTAL

ANALYSTS

This valuation is relevant to companies who are suffering to severe financial distress. *
LIQUIDATION VALUE

Using this valuation, both parties should voluntarily agree with the price of the
transaction and are not under threat of compulsion * FAIR MARKET VALUE

It involves managing the firm’s capital structure including funding sources and
strategies that businesses should pursue to maximize firm value. * CORPORATE
FINANCE
It relates to the difference between cash inflows generated by an investment and the
cost associated with the capital invested. * VALUE

According to Michael Porter, this should be sustained to increase the firm value. *

It pertains to the method how the company makes money and it allows analysts to
capture the right performance drivers that should be included in the valuation model. *

This is the focus of analyzing historical financial information. *

It summarizes the future-looking view of the business resulted from industry

assessment and historical financials. * FORECASTING

This type of valuation can be used if the basis of the value is concretely established
and complete. * ASSET BASED VALUATION

This method provides a more transparent view on firm value and is more verifiable
since figures are based on financial statements. * BOOK VALUE METHOD

Under this method, the value of the individual assets shall be adjusted to reflect the
relative value or cost equivalent to change the asset. * REPLACEMENT VALUE
METHOD

This method is use to estimate the cost of creating, developing or manufacturing a

similar asset. * REPRODUCTION VALUE

This method assumes that the reasonable value for the company to be purchased is
the amount which the investors will realize in the end of its life or the value of when it
is terminated. * LIQUIDATION VALUE

This method uses asset values as presented on the statement of financial position
less the liabilities. * BOOK VALUE METHOD

This method presents the value based on its salvage value. *

The advantage of using this approach is it enables the analyst to validate the firm
value through the value of its assets. * INTRINSIC VALUE

In this type of liquidation, assets are sold over a reasonable time to generate the most
money. * ORDERLY LIQUIDATION

This theory holds the belief that stock prices are not affected by dividends but by
sustainability of the assets. * DIVIDEND IRRELEVANCE THEORY

It is computed by adding the debt margin and risk-free rate. * WEIGHTED AVERAGE
COST OF CAPITAL

This can be used to determine the appropriate cost of capital by weighing the portion
of the asset funded through debt and equity. * WEIGHTED AVERAGE COST OF
CAPITAL

It is the excess of the company’s earnings after deducting the cost of capital. *
ECONOMIC VALUE ADDED

It is the product between investment value and rate of cost of capital. * COST OF
CAPITAL

In this method, the value of the asset or the investment is determined using the
anticipated earnings divided by capitalization rate. * CAPITALIZATION OF EARNINGS
METHOD

This is calculated through dividing the future earnings to required return. *

CAPITALIZED EARNINGS METHOD

It is the amount added to the value of the firm to gain control of it. * EQUITY
CONTROL PREMIUM

It is the additional value inputted to account for the increase of the firm value due to
potential growth and operating efficiencies. * EARNING ACCRETION
This valuation that the best estimate of value is based on the returns that an asset or
business can generate in the future. * INCOME BASED VALUATION

This valuation includes economic value added and capitalized earnings method. *
EQUITY VALUE

Using capital asset pricing model, this is where the difference between market return
and risk-free rate is multiplied. * CAPITAL ASSET PRICING MODEL

This theory believes that dividend or capital gains has an impact on stock price. *
BIRD-IN-HAND THEORY

This is where idle assets are added to compute the equity value. * CAPITALIZED
EARNINGS

It quickly measures the ability of the firm to support its cost of capital using its
earnings. * ECONOMIC VALUE ADDED
PROBLEM SOLVING
Analyze and solve the problems given. Click the button of the correct answer (2 points each).

The following information was reported by Hemlock Company in their financial

statements. What is the book value of the company? *
2 points

P 3,000,000
P 7,800,000
P 4,800,000
P 6,000,000
P 8,800,000

What is the net book value of assets per share of Hemlock Company? *
2 points

P6.00
P3.75
P9.75
P11.00
P7.50

Spruce Company had reported current assets of P8,000,000 and non-current assets
of P5,000,000. The company’s current liabilities amounted to P700,000 while non-
current liabilities amounted to P1,300,000. Assuming that 70% of the non-current
asset has an estimated replacement value of 120% while the remaining non-current
assets has replacement value of 90% of their recorded net book value. What is the
replacement value per share if the company has 1,200,000 ordinary shares? *
2 points

P 10.21
P 5.58
P 6.08
P 9.63
P 10.71

Cedar & Maple Company had reported total assets of P7,000,000 with 40% as
current. Supposed that 65% of the non-current assets are cheaper by 80% of the book
value when reproduced while the remaining non-current assets are comprised of
goodwill. The current liabilities amounted to P600,000 while non-current liabilities
amounted to P700,000. If the company had 500,000 ordinary shares, how much is the
reproduction value per share? *
2 points

P 10.31
P 11.51
P 13.11
P 7.03
P 12.52

Fieldstone Co., a company created for a joint venture for construction will end its
corporate life in 5 years. It has an expected net cash flows of P4,000,000 for 5
consecutive years. The company’s cost of capital is 12%. The remaining assets will be
bought by another company for P25,000,000 and the remaining liabilities of
P5,000,000 will be settled. Fieldstone Co. has estimated to incur P9,000,000 for
closure costs and rehabilitation cost. What is the present value of cash inflows during
years of operation using the table below? *
2 points
P 18,024,000
P 15,162,800
P 14,419,200
P 13,343,264
P 17,098,700

What is the liquidation value of Fieldstone Co.? *

2 points

P 8,455,000
P 5,890,100
P 7,100,000
P 6,241,400
P 9,521,000

What is the value of Fieldstone Co.? *

2 points

P 34,500,000
P 20,660,600
P 24,790,000
P 25,890,000
P 34,900,000

Compute for missing figures using the Capital Asset Pricing Model. What is the risk-
free rate for W Company? *
2 points
3.50%
3.25%
3.00%
3.75%
4.00%

What is the value of beta of X Company? *

2 points

1.5
1.3
1.2
1.8
1.7

What is the value of market return for Y Company? *

2 points

12%
13%
14%
15%
16%

What is the value of cost of equity for Z Company? *

2 points

12.60%
14.20%
12.90%
13.80%
14.70%

With risk free rate of 6%, beta of 1.40, market return of 9%, prevailing credit spread of
14%, tax rate of 30% and equity ratio of 45%. What is the weighted average cost of
capital of the firm? *
2 points

10.21%
9.98%
8.95%
7.86%
11.25%

Rangeland Company’s computed economic value added is P45,000,000. The

investment value amounted to P90,000,000 while the rate of cost of capital is 11%.
How much was the earnings of the company? *
2 points

P 55,700,000
P 52,500,000
P 54,900,000
P 57,000,000
P 53,600,000

Ponderosa Company has projected its net cash flows for three years amounted to
P500,000, P700,000 and P900,000 consecutively with the required return of 10%.
What is the equity value of the company? *
2 points

P7,000,000
P5,000,000
P9,000,000
P8,000,000
P4,000,000

Suppose Ponderosa Company had idle assets amounting to P2,500,000. How much is
the computed equity value? *
2 points

P6,500,000
P9,500,000
P11,500,000
P10,500,000
P7,500,000