ĐGDN - BT

QUESTIONS AND PROBLEMS
CHAPTER 1
Overview of Corporate Valuation
Section 1.1
1. What is a business enterprise? Which characteristics of a business enterprise do we have

to pay attention to when it comes to business valuation?
2. How can we differentiate Cost, Price and Value? Give an example.
3. Analyze the definition of Value of a business enterprise and the definition of

Business/Corporate Valuation
4. Which are the determinants of (factors that have influences on) Value of a business
enterprise?
5. When do you need to value a business?
6. Why can’t maximizing profits be the ultimate goal of a particular business enterprise?
7. Is it true if we say that a good valuation provides a precise estimate of value? Why?
8. Is the date of the valuation important? Do business valuation expire?
9. How do business appraisers determine value or in other words, how many approaches
can we apply in valuing a business enterprise and what are they?
10. What information do you think is needed to perform a business valuation?
CHAPTER 2
Asset-based Approach
Section 2.1: Questions
11. What is general theoretical basis of asset-based approach in business valuation?
12. Explain theoretical basis and contents of Net Asset Value Method.
13. Which disadvantage of Net asset value method do you think is the reason giving rise to
Quantifying Goodwill Method?
14. Explain theoretical basis and contents of Quantifying Goodwill Method.
15. According to the economic concept, how can we define Goodwill?
16. What are the characteristics of Goodwill?

17. How can we determine the value of Goodwill?
18. What is the advantages and disadvantages of Quantifying Goodwill Method?
Section 2.2: Problems
Problem 1:
Company X has a summarized balance sheet at 31/12/N
Currency unit: million VND
Assets Book value Sources of financing Book value
Current Assets 700 Liabilities 900
Non-current Assets 1800 Owner’s Equity 1600
Total Assets 2500 Liabilities+ Owner’s Equity 2500
According to the revaluation of all assets and liabilities, there has been some changes taking
place:
1. Some doubtful receivables of the company with the book value of 80 million VND
have been acquired by a debt trading company with the price being equal 30% of its
record value.
2. Obsolete and unserviceable raw materials inventory has a book value of 60 million
VND
3. Fixed-assets have a book value of 1300 million VND, after marking to market, this
figure is up to 1500 million VND.
4. X still has to pay the fixed assets rental payments during the next 10 years, 50 million
VND per year. In order to rent an equivalent asset at this moment, a company has to
pay the amount of 60 million VND each year. The discount rate is 20%.
5. Investing in securities of company B: (2000 stocks) book value is 200 million VND.
At the time of revaluing, the price of a B’s stock in the Stock Exchange is 95000
VND.
6. Company’s capital in partnership business is recorded as 400 million VND, after
being revalued, it goes up by 50 million VND
7. After collecting the profiles, X has already obtained all the documents proving that
some liabilities at the time of valuation will no longer be accounted for and those
liabilities have a book value of 100 million VND
Determining the value of company X.
Determine the fair value of total assets
- Receivables: Downward adjustment in the value of total assets: -80*70% = -56m

- Inventory: Downward adjustment in the value of total assets: -60m
- Fixed assets: Upward adjustment in the value of total assets: +200m
- Fixed assets rental payments: Upward adjustment in the value of total assets:
+41.92m
PV = PMT*[1-(1+i)^-n]/i = 10*[1-(1+20%)^-10]/20% = 41.92
- Investing in securities: Downward adjustment in the value of total assets: -5000*2000
= -10m
The book value of price of a B’s stock = 200m/2000 = 100000
- Capital in partnership: Upward adjustment in the value of total assets: +50m
=> Va = 2500 – 56 – 60 + 200 + 41.92 – 10 +50 = 2665.92m
Determine the fair value of liabilities: Vl = 900 – 100 = 800
Determine NAV = Va – Vl = 2665.92 – 800 = 1865.92
Problem 2:
Company X has the following document: A summarized Balance Sheet at 31/12/N
A. Current Assets 500 A. Liabilities 600
B. Non-current Assets 1500 B. Owner’s Equity 1400

• According to the revaluation of all assets and liabilities, there has been some changes
taking place:
1. Some receivables that are not be able to collect have a book value of 40 million VND
while some doubtful receivables with the book value of 60 million VND have been acquired
by a debt trading company with the price being equal to 30% of its recorded value. 2.
Obsolete and unserviceable raw materials inventory has a book value of 30 million
VND
3. Fixed-assets have a book value of 1200 million VND, after marking to market, this
figure is up to 1350 million VND.
VND per year. In order to rent an equivalent asset at this moment, a company has to pay the
amount of 25 million VND each year. The discount rate is 10%.
At the time of revaluing, the price of a B’s stock in the Stock Exchange is 125000 VND.
6. Company’s capital in partnership business, after being revalued, goes up by 20

million VND
7. According to the lease agreement in which company X is the lessor, the lease
(Company C) still has to pay during the next 20 years, 10 million VND per year. Residual
value of the leased asset on the balance sheet is 180 million VND. The discount rate is 10%.
Terminal value of the leased asset at the end of year 20 is not significant.
Total Assets: 2000
Liabilities: 600
- Receivables: Downward adjustment in the value of total assets: -40m

- Doubtful receivables: Downward adjustment in the value of total assets: -60*70% = -
42m
- Fixed assets rental payments: Upward adjustment in the value of total assets:
+30.72m
PV = PMT*[1-(1+i)^-n]/i = 5*[1-(1+10%)^-10]/10% = 30.72
- Investing in securities: Upward adjustment in the value of total assets: 125000*3000
– 300m = 75m
- Leased asset payment: Downward adjustment in the value of total assets: 85.14 – 180
= -94.86 m
PV = 10*[1-(1+10%)^-20]/10% = 85.1m
=> Va = 2000 – 40 – 42 – 30 + 150 + 30.72 + 75 + 20 – 94.86 = m
Determine the fair value of liabilities: Vl = 600
Determine NAV = Va – Vl = – 600 = m
Problem 3:
A business enterprise has the following document:
A. Total assets have a book value of 4500 million VND. However, after being marked
to market, there are some changes taking place:
1. Receivables:
- Some receivables that cannot be collected because the debtor has already been
pushed into default have a book value of 100 million VND.
- Some doubtful receivables with a book value of 240 million VND have been
acquired by a debt trading company with the maximum price of 140 million VND.
- Company X may be able to collect 80% of a receivable with the recorded value of
160 million VND.
2. Inventory:
- Obsolete and unserviceable raw materials: 80 million VND
- Inventory of Product A has been revalued upwards by 180 million VND
- Inventory of Product B: obsolete and unserviceable items have a book value of 360 million
VND.
3. Tangible fixed assets are revalued upwards by 300 million VND
4. Intangible fixed assets are revalued downwards by 60 million VND
5. Long-term investment, after being revalued, has an increase of 120 million VND in
value.
B. Sources of financing:
1. Liabilities have a book value of 2700 million VND. Some Payables that are no longer be
accounted for have a recorded value of 300 million VND.
2. Owner’s Equity has a recorded value of 1800 million VND.
Total Assets: 4500m
Liabilities: 600
1. Receivables:
- Receivables: Downward adjustment in the value of total assets: -(100+160*20%) = -

132m
- Doubtful receivables: Downward adjustment in the value of total assets: -100m
2. Inventory
- Raw materials: Downward adjustment in the value of total assets: -80m

- Inventory of Product A: Upward adjustment in the value of total assets: +180m
- Inventory of Product B: Downward adjustment in the value of total assets: -360m
3. Tangible fixed assets: Upward adjustment in the value of total assets: +300m
4. Intangible fixed assets rental payments: Downward adjustment in the value of total assets:
-60m
5. Long-term investment: Upward adjustment in the value of total assets: +120m
=> Va = 4500 – 132 – 100 – 80 + 180 – 360 + 300 – 60 + 120 = 4368m
Determine the fair value of liabilities: Vl = 2700 – 300 = 2400m
Determine NAV = Va – Vl = 4368 – 2400 = 1968m
Problem 4:
Company X has a summarized Balance Sheet at 31/12/N
Currency Unit: million VND

Total Assets 2700 Liabilities+ Owner’s 2700
Equity
place:
1. Company X has an amount of 15.000 USD that was recorded on the balance sheet at
280 million VND. At the time of revaluation, the exchange rate of USD/VND is 20.000.
2. According to the lease agreement in which company X is the lessor, the leasee
(Company C) still has to pay during the next 5 years, 20 million VND per year. In order to
rent an equivalent asset at this moment, a leasee has to pay the amount of 30 million VND
each year. The discount rate is 15%.

million VND
some liabilities at the time of valuation will no longer be accounted for and those liabilities
have a book value of 100 million VND
Determining the value of company X
Total assets: 2700
Liabilities: 1200
- Cash: Upward adjustment in the value of total assets: 20000*15000 – 280m = +20m
- Asset rental payment: Downward adjustment in the value of total assets: -33.52m
PV = PMT*[1-(1+i)^-n]/i = 10*[1-(1+15%)^-5]/15% = 33.52
=> Va = 2700 + 20 – 33.52 + 50 = 2736.48m

Problem 5:
place:
1. Some doubtful receivables of the company with the book value of 80 million VND have
been acquired by a debt trading company with the price being equal 30% of its record value.
2. Obsolete and unserviceable raw materials inventory has a book value of 60 million
VND
3. Fixed-assets have a book value of 1300 million VND, after marking to market, this figure
is up to 1500 million VND.
VND per year. In order to rent an equivalent asset at this moment, a company only has to
pay the amount of 40 million VND each year. The discount rate is 15%.
At the time of revaluing, the price of a B’s stock in the Stock Exchange is 95000 VND.
6. Company’s capital in partnership business is recorded as 400 million VND, after being
revalued, it goes up by 50 million VND
7. After collecting the profiles, X has already obtained all the documents proving that some
liabilities at the time of valuation will no longer be accounted for and those liabilities have a
book value of 100 million VND

Total assets: 2500
Liabilities: 900
- Receivables: Downward adjustment in the value of total assets: -80*70% = -56m

- Fixed assets rental payments: Downward adjustment in the value of total assets: -
50.19m
PV = PMT*[1-(1+i)^-n]/i = 10*[1-(1+15%)^-10]/15% = 50.19
- Investing in securities: Downward adjustment in the value of total assets:
95000*2000 – 200m = -10m
=> Va = 2500 – 56 – 60 + 200 – 50.19 – 10 + 50 = 2573.81m
Problem 6:
Assets 1/1 31/12 Sources of financing 1/1 31/12
Current Assets 1500 1900 Liabilities 1960 1620
Non-current Assets 1500 1600 Owner’s Equity 1040 1880
Total Assets 3000 3500 Liabilities +Owner’s Equity 3000 3500
• The original and accumulated depreciation of the fixed assets at 31/12/N
Kinds of fixed assets The original price Accumulated depreciation
1. Real estate property 500 150
2. Machines 800 450

3. Transportations 300 200
4. Management tools 180 90
5. Others 200 110
Total fixed assets 1,980 1000
place
a. The revaluation ratio of the fixed assets by the original price.
- Real estate property: 0.8;
– Machines: 0.7
– Transportations: 0.65;
- Management tools: 0.75
- Others: 0.9
b. The revaluation ratio of the inventory: 0.9. The book value of inventory
is 950 m VND
c. Other assets and the liabilities are unchanged.
Total assets: 3500
Liabilities: 1620
a. Fixed assets
Kinds of fixed The Accumulated Residual Market Adjustment

assets original depreciation value value
price (Book
value)
1. Real estate 500 150 350 500*0.8 = +50

property 400
2. Machines 800 450 350 800*0.7 = +210

560
3. 300 200 100 300*0.65 = +95
Transportation 195
s
4. Management 180 90 90 180*0.75 = +45

tools 135
5. Others 200 110 90 200*0.9 = +90

180
Total fixed 1980 1000 980 +490

assets
Inventory: Downward adjustment in the value of total assets: -950*0.1 = -95
=> Va = 3500 + 490 – 95 = 3895
Determine the fair value of liabilities: Vl = 1620
Determine NAV = Va – Vl = 3895 – 1620 = 2275
Problem 7:
Determining the value of Company X based on the following information:
- Net asset value of Company X at the time of valuation is 100 billion VND
- Net income at the time of valuation is recalculated as an average of net income in the last 3
years and ends up with an amount of 20 billion VND. Net income is expected to increase
10% per year in the next 3 years.
- Net asset value is expected to annually increase 6% per year
- An average returns on equity ratio of comparable companies in the industry is 13%. Yield
on Treasury bond is 12%, equity risk premium on the securities market is 3%.
NI0 = 20b, 10%, 3 years
NAV0 = 100b, 6%
r = 13%
i = 12% + 3% = 15%
0 1 2 3
Bt 20 B1 = B0*(1+g) = B2 = 22*1.1 = B3 = 24.2*1.1

20*(1+10%) = 22 24.2 = 26.62
At 100 A1 = 100*(1+6%) 112.36 119.1

= 106
r 13% 13% 13% 13%
SPt = Bt – ---- 8.22 9.59 11.14

r*At
GW0 = 8.22/(1+15%) + 9.59/1.15^2 + 11.14/1.15^3 = 21.72b
=> V0 = NAV0 + GW0 = 100 + 21.72 = 121.72b
Problem 8:
place:
5. Company X has an amount of 15.000 USD that was recorded on the balance sheet at
270 million VND. At the time of revaluation, the exchange rate of USD/VND is 20.000.
6. According to the lease agreement in which company X is the lessor, the lease
(Company C) still has to pay during the next 5 years, 20 million VND per year. In order to
rent an equivalent asset at this moment, a lease has to pay the amount of 30 million VND
each year. The discount rate is 10%.

million VND
some liabilities at the time of valuation will no longer be accounted for and those liabilities
Determining the value of company X, if:
- ROE (earnings after tax) is 20%, Owner’s equity at 1/1/N is 1300 million VND
- In the next 2 years, net income and NAV are expected to increase 10% and 5% each
year equivalently. After that, ROA of the company X will be equal to the average
ratio of all comparable firms in the industry.
- Discount rate is 15%/year
- The average ROE of companies with similar operating conditions is 14%.
Total assets: 2700
Liabilities: 1300
- Cash: Upward adjustment in the value of total assets: 20000*15000 – 270m = +30m
- Lease agreement: Downward adjustment in the value of total assets: -37.91m
PV = PMT*[1-(1+i)^-n]/i = 10*[1-(1+10%)^-5]/10% = 37.91
=> Va = 2700 + 30 – 37.91 + 50 = 2742.09m
ROE of X = 20%, Owner’s equity 1/1/N = 1300m, 31/12/N = 1400m
=> NI0 = (1300+1400)/2*20% = 270m, increase 10%/year, 2 years
NAV0 = 1542.09, 5%, 2 years
r = 14%
i = 15%
0 1 2
Bt 270 B1 = B0*(1+g) = B2 = 297*1.1 =

270*(1+10%) = 297 326.7
At 1542.09 A1 = 1542.09*(1+5%) 1700.15

= 1619.19
r 14% 14% 14%
SPt = Bt – ---- 70.31 88.68

r*At
GW0 = 70.31/(1+15%) + 88.68/1.15^2 = 128.19m
=> V0 = NAV0 + GW0 = 1542.09 + 128.19 = 1670.28m
Problem 09:
7. Machines 700 120
10. Others 100 60
Total fixed assets 1.450 450
place
b. The revaluation ratio of the fixed assets by the original price.

– Machines: 0.7
- Others: 0.9
d. The revaluation ratio of the inventory: 0.9. The book value of inventory is 600 mil
VND
e. Other assets and the liabilities are unchanged.
Determining the value of company X knowing that:
years and ends up with an amount of 250 million VND. Net income is expected to increase

price (Book
value)
1. Real estate 300 100 200 300*0.9 = +70

property 270
2. Machines 700 120 580 700*0.7 = -90

490
3. 200 100 100 200*0.7 = +40

Transportation 140
s
4. Management 150 70 80 150*0.7 = +25

tools 105
5. Others 100 60 40 100*0.9 = +50

90
Total fixed 1450 450 1000 +95

assets
=> Va = 2500 + 95 – 60 = 2535m
Determine the fair value of liabilities: Vl = 1320m
NI0 = 250m, increase 10%/year, 3 years
NAV0 = 1215m, 6%
r = 13%
i = 12% + 3% = 15%
0 1 2 3
Bt 250 B1 = B0*(1+g) = B2 = 275*1.1 = 332.75

250*(1+10%) = 275 302.5
At 1215 A1 = 1215*(1+6%) = 1365.17 1447.08

1287.9
r 13% 13% 13% 13%
SPt = Bt – ---- 107.57 125.03 144.63

r*At
GW0 = 107.57/(1+15%) + 125.03/1.15^2 + 144.63/1.15^3 = 283.18m
=> V0 = NAV0 + GW0 = 1215 + 283.18 = 1498.18m
Problem 10:
A business enterprise has the following document:
A. Total assets have a book value of 8,000 million VND. However, after being revalued,
there are some changes taking place:
1. Receivables:
240 million VND.
2. Inventory:
VND.
3. Tangible fixed assets are revalued upwards by 300 million VND;
4. According to the lease agreement in which company X is the lessor, the lease (Company
C) still has to pay during the next 8 years, 30 million VND per year. In order to rent an
equivalent asset at this moment, a lease has to pay the amount of 45 million VND each
year.
5. Investing in securities of company B: (4,000 stocks) book value is 330 million VND. At
the time of revaluing, the price of a B’s stock in the Stock Exchange is 125000 VND.
6. Intangible fixed assets are revalued upwards by 160 million VND
7. Long-term investment, after being revalued, has an increase of 150 million VND in
value.
B. Sources of financing:
1. Liabilities have a book value of 3,500 million VND. Some Payables that are no longer be
accounted for have a recorded value of 300 million VND.
2. Owner’s Equity has a recorded value of 4,500 million VND.
Determining the value of Company X based on the following information:
years and ends up with an amount of 850 million VND. Net income is expected to increase
Total assets: 8000m
Liabilities: 3500m
Determine the fair value of total assets:
1. Receivables: Downward adjustment in the value of total assets: -100 – (320-140) -

240*30% = -352m
2. Inventory

3. Tangible fixed assets: Upward adjustment in the value of total assets: +300m
4. Lease agreement: Downward adjustment in the value of total assets: -67.31m
PV = PMT*[1-(1+i)^-n]/i = 15*[1-(1+15%)^-8]/15% = 67.31
5. Investing in securities: Upward adjustment in the value of total assets: 125000*4000 –

330m = 170m
6. Intangible fixed assets rental payments: Upward adjustment in the value of total assets:
+160m
7. Long-term investment: Upward adjustment in the value of total assets: +150m
=> Va = 8000 – 352 – 180 + 130 – 330 + 300 – 67.31 + 170 + 160 + 150 = 7980.69m
Determine NAV = Va – Vl = 7980.69 – 3200 = 4780.69m
NI0 = 850m, increase 12%/year, 3 years
NAV0 = 4780.69m, 8%
r = 14%
i = 12% + 3% = 15%
0 1 2 3
Bt 850 B1 = B0*(1+g) = B2 = 952*1.12 = 1194.19

850*(1+12%) = 952 1066.24
At 4780.69 A1 = 5576.2 6022.3

4780.69*(1+8%) =
5163.15
r 14% 14% 14% 14%
SPt = Bt – ---- 229.16 285.57 351.07

r*At
GW0 = 229.16/(1+15%) + 285.57/1.15^2 + 351.07/1.15^3 = 646.04m
=> V0 = NAV0 + GW0 = 4780.69 + 646.04 = 5426.73m
Problem 11:
place:
1. Receivables:
280 million VND.
2. Inventory:

VND.
3. Company X has an amount of 18.000 USD that was recorded on the balance sheet at 330
million VND. At the time of revaluation, the exchange rate of USD/VND is 20.000. 4.
According to the lease agreement in which company X is the lessor, the lease (Company C)
still has to pay during the next 5 years, 20 million VND per year. In order to rent an
equivalent asset at this moment, a lease has to pay the amount of 30 million VND each year.
5. Company’s capital in partnership business, after being revalued, goes down by 80 million
VND
6. After collecting the profiles, X has already obtained all the documents proving that some
liabilities at the time of valuation will no longer be accounted for and those liabilities
Determining the value of company X, if:
- ROE (earnings after tax) is 20%, Owner’s equity at 1/1/N is 2500 million VND
year equivalently. After that, ROA of the company X will be equal to the average
ratio of all comparable firms in the industry.
- Discount rate is 15%/year
Total assets: 3200m
Liabilities: 1200
Determine the fair value of total assets:
1. Receivables: Downward adjustment in the value of total assets: -120 – (350-180) -

280*35% = -388m
2. Inventory: Downward adjustment in the value of total assets: -150 + 120 - 330 = -360m

3. Foreign currency: Upward adjustment in the value of total assets: 20000*18000 – 330m =
30m
4. Lease agreement: Downward adjustment in the value of total assets: -33.52m
PV = PMT*[1-(1+i)^-n]/i = 10*[1-(1+15%)^-5]/15% = 33.52
5. Capital in partnership: Downward adjustment in the value of total assets: -80m
=> Va = 3200 – 388 – 360 + 30 – 33.52 – 80 = 2368.48m
Determine NAV = Va – Vl = 2368.48 – 1070 = 1298.48m
ROE = 20%, Owner’s equity 1/1/N = 2500m, 31/12/N = 2000
=> NI0 = 20%*(2500+2000)/2 = 450m, increase 10%/year, 3 years
NAV0 = 1298.48m, 5%
r = 14%
i = 15%
0 1 2 3
Bt 450 B1 = B0*(1+g) = B2 = 495*1.1 = 598.95

450*(1+10%) = 495 544.5
At 1298.48 A1 = 1431.57 1503.15

1298.48*(1+5%) =
1363.4
r 14% 14% 14% 14%
SPt = Bt – ---- 304.12 344.08 388.51

r*At
GW0 = 304.12/(1+15%) + 344.08/1.15^2 + 388.51/1.15^3 = 780.08m
=> V0 = NAV0 + GW0 = 1298.48 + 780.08 = 2078.56m
Problem 12:

12. Machines 800 120
15. Others 200 60
Total fixed assets 1.950 450
place
c. The revaluation ratio of the fixed assets by the original price.
– Machines: 0.65
- Others: 0.85
f. The revaluation ratio of the inventory: 0.9. The book value of inventory is 800 mil
VND
g. Other assets and the liabilities are unchanged.
Determining the value of company X knowing that:
comparable firms in the industry.
- ROA (earnings after tax) is 20%; Discount rate is 15%/year;


price (Book
value)
1. Real estate 500 100 400 500*0.85 = +25

property 425
2. Machines 800 120 680 800*0.65 = -160

520
3. 250 100 150 250*0.7 = +25

Transportation 175
s
4. Management 200 70 130 200*0.7 = +10

tools 140
5. Others 200 60 140 200*0.85 = +30

170
Total fixed 1950 450 1500 -70

assets
=> Va = 3500 – 70 – 80 = 3350m
Determine the fair value of liabilities: Vl = 1320m
ROA = 20%, Total assets 1/1/N = 3000m, 31/12/N = 3500m
=> NI0 = 20%*(3000+3500)/2 = 650m, increase 10%/year, 3 years
NAV0 = 2030m, 5%
r = 14%
i = 15%
0 1 2 3
Bt 650 B1 = B0*(1+g) = B2 = 715*1.1 = 865.15
650*(1+10%) = 715 786.5
At 2030 A1 = 2030*(1+5%) = 2238.08 2349.98

2131.5
r 14% 14% 14% 14%
SPt = Bt – ---- 416.59 473.17 536.15

r*At
GW0 = 416.59/(1+15%) + 473.17/1.15^2 + 536.15/1.15^3 = 1072.56m
=> V0 = NAV0 + GW0 = 2030 + 1072.56 = 3102.56m
CHAPTER 3
Relative Valuation (Market approach) Problem
Example 2: Company X has a constant growth rate of dividend standing at the level of 10%
and can sustain this rate in next 5 years. Now, company has EPS of $4.65. Dividend payout
ratio is 60% and kept unchanged in the future.
At the end of the 5th year, average P/E of the industry in which X is operating is estimated
at the level of 17, and the required rate of return on equity is 15%.
Determine the value of X, given that the number of Company X’s outstanding stocks is 1
millions and there are no prefer stock.
D0 = POR*EPS*No of stocks = 60%*$4.65*1m = $2.79m
V5 = P/E5*EPS0*(1+g)^5*No of stocks = 17*4.65*(1+10%)^5*1m = 127.31m
[ ] [ ]
5 5
D1 (1+ g) V5 2.79∗(1+10 % ) (1+10 % ) 127.31
=> V 0= 1− 5
+ 5
= 1− 5
+ 5
R−g (1+ R) (1+ R) 15 %−10 % (1+15 % ) (1+15 %)
= 75.53m
Example 3: Investor A decides to invest in stock of company X. and intend to hold X stock
for 5 years. Known that company X has a constant growth rate of dividend standing at the
level of 9% per year. Now, company X has EPS of $3.5. Dividend payout ratio is 55% and
kept unchanged in the future.
At present, the value of stock X in stock market is $40 per share, and the required rate of
return on equity is 14%.
Determine the average P/E of the industry at the end of holding period, given that the
number of Company X’s outstanding stocks is 1 millions and there are no prefer stock.
V0 = Market value per share*No of stocks = $40*1m = $40m
[ ]
5
D1 (1+ g) V5
= 1− +
R−g (1+ R) (1+ R)5
5
D0 = POR*EPS*No of stocks = 55%*3.5*1m = 1.925m
=>
1.925∗(1+ 9 %)
14 %−9 %
1−
[1.095
1.14
5
+
] V5
1.14
5 = 40m = > V5 = 60.78m
=> P/E5*EPS0*(1+g)^5*No of stocks = 60.78  P/E5*3.5*(1+9%)^5*1m = 60.78m
=> P/E5 = 11.29
1:
National City Corporation, a bank holding company, reported earnings per share of $2.4 in
1993 and paid dividends per share of $1.06. Dividend payout ratio is kept unchanged. The
earnings had grown 7.5% a year over the prior 5 years and were expected to grow 6% a year
in the long-term (starting in 1994). The stock was traded for 10 times earnings in 1993.
Determine the required rate of return on equity (discount rate).
Problem 2:
Company GLK has a constant growth rate of dividend standing at the level of 10% and can
sustain this rate in the future. The required rate of return on equity is 15%. Trailing P/E ratio
is 5.5. Determine the constant payout ratio over the years?
Problem 3:
Company K has been operating in a stable condition with some financial ratios being shown
as follows:
- Total Assets: 1000 billion VND.
- Payout ratio is 60%.
- Return on Equity is 12%.
- Debt ratio is 0,5 (Total short-term and long-term debts/Total Assets)

- Risk-free rate is 12%, rate of return on market-index is 17%, K has a beta of 0.9 K
has some financial projections as follows:
- In the next 2 years, dividend is expected to grow 5% per year and after that, the rate
is kept at 4% in the third and fourth year.
- Constant dividend payout ratio is 60%
- At the end of the fourth year, average P/E of the industry in which K is operating is
estimated at the level of 20.
Determine the value of K using P/E multiple.
R = Rf + beta*(Rm-Rf) = 12% + 0.9*(17%-12%) = 16.5%
Equity = Total assets*(1-Debt ratio) = 1000b*(1-0.5) = 500b VND
=> Net income0 = ROE*Equity = 12%*500b = 60b VND
=> D0 = Net income0*POR = 60b*60% = 36b VND
V4 = P/E4*Net income4 = P/E4*Net income0*(1+g1)^2*(1+g2)^2
= 20*60*(1+5%)^2*(1+4%)^2 = 1430.96m
D 0∗( 1+ g 1 ) D 0∗( 1+ g1 )2 D 0∗( 1+ g 1 )2∗( 1+ g 2 ) D0∗( 1+ g 1 )2∗( 1+ g 2 )2 V4

=> V 0= + 2
+ 3
+ 4
+ 4
( 1+ R ) ( 1+ R ) ( 1+ R ) ( 1+ R ) ( 1+ R )
2 2 2 2
36∗(1+5 % ) 36∗( 1+5 % ) 36∗( 1+5 % ) ∗( 1+4 % ) 36∗( 1+5 % ) ∗( 1+ 4 % ) 1430.96
= + 2
+ 3
+ 4
+
( 1+16.5 % ) (1+16.5 % ) ( 1+ 16.5 % ) ( 1+16.5 % ) (1+16.5 %)4
= 887.93b VND
Problem 4:
XYZ has an EBIT of 100 billion VND.
- Total par value of outstanding bonds is 20 billion VND, coupon rate is 8% per year.
- Supplier credit is 20 billion VND.
- Borrowing an amount of 50 billion from bank with the interest rate of 10% per year. -
XYZ has 15 million outstanding common stocks, has no preferred and treasury
stocks. Dividend payout ratio is kept unchanged at the level of 60%. Corporate
income tax is 25%.
- 5-year Treasury bond interest rate is 9%, returns on market index is 15%, beta of
XYZ is 1.1
a. Determine the value of XYZ if in the next 3 years, the growth rate is expected to be
10% per year and is kept stable later on at the level of 6% per year.
b. If XYZ can be sold at 450 billion VND and the growth rate in the next 3 years is 10%
per year, what will be the expected P/E ratio at the end of the year 3?
EBT = 100 – 20*8% - 50*10% = 93.4
=> NI = EBT*(1-T) = 93.4*(1-25%) = 70.05
R = Rf + beta*(Rm-Rf) = 9% + 1.1*(15%-9%) = 15.6%
D0 = NI*POR = 70.05*60% = 42.03
D1 = D0*(1+g1) = 42.03*(1+10%) = 46.23
D2 = D1*(1+g1) = 50.85
D3 = 55.94
D4 = D3*(1+g2) = 55.94*(1+6%) = 59.3
=> V3 = D4/(R-g2) = 59.3/(15.6%-6%) = 617.71
=> V0 = D1/(1+g1) + D2/(1+g1)^2 + D3/(1+g1)^3 + V3/(1+g1)^3 =
CHAPTER 4:
Financial issues associated with using discounting-based approach
I. The future value of money
1. The future value of a single cash flow
You are the lucky winner of your state’s lottery of $5 million before taxes. You invest your
winnings in a five-year certificate of deposit (CD) at a local financial institution. The CD
promises to pay 7% per year compounded annually. This institution also lets you reinvest
the interest at that rate for the duration of the CD. How much will you have at the end of
five years if your money remains invested at 7% for five years with no withdrawals and the
tax rate is 35%?
The winnings before tax = $5m*(1-35%) = $3.25m

At the end of five years, the amount you will have if your money remains invested at 7
percent with no withdrawals = $3.25m*(1+7%)^5 = $4.5583m
An institution offers you the following terms for a contract: For an investment of
$2,500,000, the institution promises to pay you a lump sum six years from now at an 8%
annual interest rate. What future amount can you expect?
The future amount you can expect to receive after 6 years from now = $2.5m*(1+8%)^6 =
$3.9672m
A pension fund manager estimates that his corporate sponsor will make a $10 million
contribution five years from now. The rate of return on plan assets has been estimated at 9
percent per year. The pension fund manager wants to calculate the future value of this
contribution 15 years from now, which is the date at which the funds will be distributed to
retirees. What is that future value?
* What the today value of the $10 million can be received five years from now? (The
present value)
From the standpoint of today (t = 0), the future amount of $23,673,636.75

(=$10,000,000*(1+9%)^10) is 15 years into the future. Although the future value is 10 years
from its present value, the present value of $10 million will not be received for another five
years.
The today value of the $10 million to be received five years from now = $10m/(1+9%)^5 =
$6.5m
4. The future value of a lump sum with quarterly compounding
Your bank offers you a CD with a two year maturity, a stated annual interest rate of 8%
compounded quarterly, and a feature allowing reinvestment of the interest at the same
interest rate. You decide to invest $10,000. What will the CD be worth at maturity?
The worth of the CD at maturity = $10,000*(1+8%/4)^8 = $11,716.59
5. The future value of a lump sum with monthly compounding
An Australian bank offers to pay you 6 percent compounded monthly. You decide to invest
A$1 million for one year. What is the future value of your investment if interest payments
are reinvested at 6 percent?
The future value of your investment = $1,000,000*(1+6%/12)^12 = $1,061,678
6. The future value of a lump sum with continuous compounding ( FV N =PV . e r N ¿ s
Suppose a $10,000 investment will earn 8 percent compounded continuously for two years.
What is the future value of that lump sum?

rs N 0.08∗2
FV N =PV . e =$ 10,000∗e =$ 11,735.11
7. The future value of a series of cash flows (Ordinary Annuity)
What is the future value of an ordinary annuity that pays $150 per year at the end of each of
the next 15 years, given the investment is expected to earn a 7% rate of return?
[ ]
N 15
(1+r ) −1 (1+7 %) −1
FV = CF. = $150* = $3769.35
r 7%
8. The future value of a series of cash flows (Annuity Due)
What is the future value of an annuity due that pays $100 per year at the beginning of each
of the next three years, commencing today, given the investment is expected to earn a 10%
rate of return?
FV = CF. [ r ]
( 1+r ) N −1
[
.(1+r ) = $100.
( 1+10 % )3−1
10 % ]
. (1+ 10 %) = $364.1
9. The future value of a series of cash flows (Annuity Due)
If you deposit $1,000 in the bank today and at the beginning of each of the next three years,
how much will you have six years from today at 6% interest?
[ ]
4
FV 4 = $1,000. ( 1+6 % ) −1 .(1+6 %) = $4,637.09
6%
FV 6= $4,637.09*(1+6%)^2 = $5,210.24
10. The future value of a series of cash flows (Ordinary Annuity)
Suppose your company’s defined contribution retirement plan allows you to invest up to
€20,000 per year. You plan to invest €20,000 per year in a stock index fund for the next 30
years. Assuming that you actually earn 9 percent a year, how much money will you have
available for retirement after making the last payment?
The money you will have available for retirement after making the last payment:
FV = $20,000* [ ( 1+9 % )30−1

9% ]= $2,726,150.77
11. Your grandfather has agreed to deposit a certain amount of money each year into an
account paying 7.25 percent annually to help you go to graduate school. Starting next year,
and for the following four years, he plans to deposit $2,250, $8,150, $7,675, $6,125, and
$12,345 into the account. How much will you have at the end of the five years?
A series of unequal cash flows and their future values at 7.25%
Time Cash flow Futute value at year 5
t=1 $2,250 $2,250*(1+7.25%)^4 = $2,976.95
t=2 $8,150 $8,150*1.0725^3 = $10,054.25
t=3 $7,675 $7,675*1.0725^2 = $8,828.22
t=4 $6,125 $6,125*1.0725^1 = $6,569.06
t=5 $12,345 $12,345*1.0725^0 = $12,345
=> The amount you will have at the end of five years = Sum = $40,773.48
12. If you deposit $1,000 in the bank today and at the beginning of each of the next 3
years, how much will you have 6 years from today at 6% interest? (giống bài 9)
13. Two years from now, a client will receive the first of three annual payments of
$20,000 from a small business project. If she can earn 9 percent annually on her investments
and plans to retire in six years, how much will the three business project payments be worth
at the time of her retirement?
She gets a payment at time t =2 (the first payment), t = 3 and t = 4
She retires at time t = 6
The FV of the three business project payments at time t = 4: FV4 = $20,000* [ 9% ]

( 1+9 % )3−1
=
$65,562
The FV of the three business project payments at time of her retirement (t = 6):
FV6 = FV4*(1+9%)^2 = $65,562*1.09^2 = $77,894.21
14. A couple plans to set aside $20,000 per year in a conservative portfolio projected to
earn 7 percent a year. If they make their first savings contribution one year from now, how
much will they have at the end of 20 years?
The amount they will have at the end of 20 years: FV = $20,000* [ ( 1+7 % )20−1
7%
=]
$819,909.85
II. The present value of money
1. The present value of a lump sum
An insurance company has issued a Guaranteed Investment Contract (GIC) that promises to
pay $100,000 in six years with an 8 percent return rate. What amount of money must the
insurer today at 8 percent for six years to make the promised payment?
The amount of money the insurer must deposit today: PV0 = FV6/(1+i)^n =
$100,000/(1+8%)^6 = $63,016.96
2. The present value of a lump sum
Suppose you own a liquid financial asset that will pay you $100,000 in 10 years from today.
Your daughter plans to attend college four years from now, and you want to know what the
asset’s present value will be at that time. Given an 8 percent return rate, what will the asset
be worth four years from today? What will the asset be worth today?
The value of asset today: PV0 = FV10/(1+i)^n = $100,000/(1+8%)^10 = $46,319.35
3. The present value of a lump sum with monthly compounding
The manager of a Canadian pension fund knows that the fund must make a lump-sum
payment of C$5 million 10 years from now. She wants to invest an amount today in a
Guaranteed Investment Contract (GIC) so that it will grow to the required amount. The
current interest rate on GICs is 6 percent a year, compounded monthly. How much should
she invest today in the GIC?
The amount she should invest today in the GIC: PV0 = FV10/(1+i)^n =
$5,000,000/[(1+6%/12)^(10.12)] = $2,748,1633.67
4. The present value of an Ordinary Annuity
Suppose you are considering purchasing a financial asset that promises to pay €1,000 per
year for five years, with the first payment one year from now. The required rate of return is
12 percent per year. How much should you pay for this asset?
The amount you should pay for this asset:
PV0 = PMT*[1-(1+i)^-n]/i = €1,000*[1-(1+12%)^-5]/12% = €3,604.78
5. The present value of an Annuity Due
You are retiring today and must choose to take your retirement benefits either as a lump sum
or as an annuity. Your company’s benefits officer presents you with two alternatives:
- An immediate lump sum of $2 million
- Or an annuity with 20 payments of $200,000 a year with the first payment starting
today.
The interest rate at your bank is 7 percent per year compounded annually.
Which option has the greater present value? (Ignore any tax differences between two
options)
The PV of an annuity: PV0 = PMT*(1+i)*[1-(1+i)^-n]/i
= $200,000*(1+7%)*[1-(1+7%)^-20]/7% = $2,267,119.05
=> An annuity will have the greater PV compared to a lump sum
6. The present value of an Ordinary Annuity
A German pension fund manager anticipates that benefits of €1 million per year must be
paid to retirees. Retirements will not occur until 10 years from now at time t=10. Once
benefits begin to be paid, they will extend until t=39 for a total of 30 payments. What is the
present value of the pension liability if the appreciate annual discount rate for plan liabilities
is 5 percent compounded annually?
PV10 = PMT*(1+i)*[1-(1+i)^-n]/i = €1,000,000*(1+5%)*[1-(1+5%)^-30]/5% =

€16,141,073.58
The PV of the pension liability: PV0 = PV10/(1+i)^10 = €16,141,073.58/(1+5%)^10 =

€9,909,219
7. The British Government once issued a type of security called a consol bond, which
promised to pay a level cash flow indefinitely. If a consol bond paid £100 per year in
perpetuity, what could it be worth today if the required rate of return were 5 percent per
year?
The PV of a consol bond: PV0 = PMT/i = £100/5% = £2,000
8. Solving for the size of annuity payment (PMT)
You are planning to purchase a $120,000 house by making a down payment of $20,000 and
borrowing the remainder with a 30-year fixed-rate mortgage with monthly payments. The
first payment is due at t=1. Current mortgage interest rates are quoted at 8 percent with
monthly compounding. What will your monthly mortgage payments be?
The PV of the payments = The amount borrowed = $100,000
PV = PMT*[1-(1+i)^-n]/i
=> $100,000 = PMT*[1-(1+8%/12)^-(30*12)]/(8%/12)
=> The amount of monthly mortgage payment: PMT = $733.76
9. Kronka, Inc., is expecting cash flows of $13,000, $11,500, $12,750, and $9,635 over the
next four years. What is the present value of these cash flows if the appropriate discount
rate is 8 percent?
The PV of these CFs: PV0 = $13,000/(1+8%) + $11,500/(1+8%)^2 + $12,750/(1+8%)^3 +

$9,635/(1+8%)^4 = $39,099.81
10. Mike White is planning to save up for a trip to Europe in three years. He will need
$7,500 when he is ready to make the trip. He plans to invest the same amount at the end
of each of the next three years in an account paying 6 percent. What is the amount he will
have to save every year to reach his goal of $7,500 in three years?
FV3 = PMT*[(1+i)^n-1]/i => $7,500 = PMT*[(1+6%)^3-1]/6%
=> The amount he will have to save every year: PMT = $2,355.82
11. Becky Scholes has $150,000 to invest. She wants to be able to withdraw $12,500
every year forever without using up any of her principal. What interest rate would her
investment have to earn in order for her to be able to so?
PV0 = PMT/i => $150,000 = $12,500/i => i = 8.33%
12. Dynamo Corp. is expecting annual payments of $34,225 for the next seven years
from a customer. What is the present value of this annuity if the discount rate is 8.5
percent?
The PV of this annuity: PV0 = PMT*[1-(1+i)^-n]/i = $34,225*[1-(1+8.5%)^-7]/8.5% =

$175,181.13
13. Assume a 35-year-old investor wants to retire in 25 years at the age of 60. She
expects to earn 12.5% on her investments prior to her retirement and 10% thereafter. How
much must she deposit at the end of each year for the next 25 years in order to be able to
withdraw $25,000 per year at the beginning of each year for 30 years?
The future value of the deposit after 25 years is equal to the present value of the withdrawal
in 30 years
The present value of the withdrawal in 30 years at t = 25:
PV25 = PMT*(1+i)*[1-(1+i)^-n]/i = $25,000*(1+10%)*[1-(1+10%)^-30]/10% =

$259,240.15
The future value of the deposit after 25 years:
FV25 = PMT*[(1+i)^n-1]/12.5% = PMT*[(1+12.5%)^25-1]/12.5%
=> PMT*[(1+12.5%)^25-1]/12.5% = $259,240.15
=> PMT =$1800.02
She must deposit $1800.02 at the end of each year
14. An insurance company has issued a Guaranteed Investment Contract (GIC) that
promises to pay $100,000 in six years with an 8 percent return rate. What amount of
money must the insurer invest today at 8 percent for six years to make the promised
payment?
The amount of money the insurer must deposit today: PV0 = FV6/(1+i)^n =
$100,000/(1+8%)^6 = $63,016.96
15. Suppose you own a liquid financial asset that will pay you $100,000 in 10 years from
today. Your daughter plans to attend college four years from today, and you want to know
that the asset’s present value will be at that time. Given an 8 percent discount rate, what
will the asset be worth four years from today?
The value of the asset four years from today: PV4 = FV10/(1+i)^n = $100,000/(1+8%)^6 =
$63,016.96
16. The manager of a Canadian pension fund knows that the fund must make a lump-sum
payment of C$5 million 10 years from now. She wants to invest an amount today in a
GIC so that it will grow to the required amount. The current interest rate on GICs is 6
percent a year, compounded monthly. How much should she invest today in the GIC?
The amount she should invest today in the GIC: PV0 = FV10/(1+i)^n =
$5,000,000/[(1+6%/12)^(10.12)] = $2,748,163.67
III. Cost of capital Problem

1:
Company H has a total amount of 2500 million VND capital investment which is funded by
the following sources:
1. Owner’s Equity: 1000 million VND

2. Debt: 1500 million VND with
- the borrowing from Bank A: 800 million VND, 5 years, H has to pay out an amount
of 200 million VND including both principal and interest payment at the end of each
year - the borrowing from Bank B: 500 million with the interest rate of 6.5%/6
months
- the borrowing from Bank C: 200 million with the interest rate of 2% per quarter
Finding the WACC of company H?
Knowing that:
- In the previous year, H paid out an amount of 24000 VND per share as a dividend to
common shareholders, current market price of common stock is 300000 VND per
share. The growth rate of H’s dividend remains stable at the level of 5% per year.
Corporate Income Tax is 20%.
PV = PMT*[1-(1+i)^-n]/i => 800 = 200*[1-(1+i)^-5]/i => i = 7.93% = Kdt(A)
Kdt(B) = [1+6.5%]^2 -1 = 13.42%
Kdt(C) = [1+2%)]^4 – 1 = 8.24%
Cost of debt: Kd = W(A)*Kdt(A)*(1-T) + W(B)*Kdt(B)*(1-T) + W(C)*Kdt(C)*(1-T)
= 800/1500*7.93%*(1-0.2) + 500/1500*13.42%*(1-0.2) + 200/1500*8.24%*(1-0.2) =

7.84%
Cost of Equity: Ke = D1/P0 + g = 24000*(1+5%)/300000 + 5% = 13.4%
=> Cost of Capital:
Problem 2:
Company M has a document on 31/12/N showing that:
- Owner’s Equity: 6000 million VND
- Debt: 4000 million VND
Company is owning 400,000 outstanding bonds with the coupon rate of 10%, the current
market price of M’s bond is 12500 VND per bond. M also has 500,000 outstanding shares
of common stock with the current market price of 30000VND per share, cost of common
stock is 15%. Corporate income tax is 20%.
Determine the WACC of Company M?
Problem 3:
Company X has 100,000 outstanding shares of common stock with the current market price
of 20000 VND per share. Last year, X paid out an amount of 2000 VND per share as a
dividend to shareholders. The growth rate of dividend remains stable at 5% per year. If
company X wants to raise more funds by newly issuing common stock, the issuing fee of
10% share price will be applied. The issuing price is the market share price.
What is the required rate of return on common stock of company X and determine the cost
of newly issued common stock.
The required rate of return on common stock of company X: R = D1/P0 + g =

2000*(1+5%)/20000 + 5% = 15.5%
Cost of newly issued common stock: Ke’ = D1/[P0*(1-e)] + g = 2000*(1+5%)/[20000*(1-

10%)] + 5% = 16.67%
Problem 4:
Company B has 1 million preferred stocks with the par value of 10000 VND per share and
the dividend rate of 12%. The current market price is 12000 VND per share. B also plans to
issue more preferred stocks in order to raise more funds for an investment project. The
issuing fee is estimated to be 10% share price. What is the required rate of return on
preferred stock of company B and determine the cost of newly issued preferred stock.
Dividend per share = 10000*12% = 1200 VND
The required rate of return on preferred stock: R = Df/Pf = 1200/12000 = 10%
The cost of newly issued preferred stock: Kf’ = Df/[Pf*(1-e)] = 1200/[12000*(1-10%)] =

11.11%
Problem 5:
Company H has a total amount of 2500 million VND capital investment which is funded by
the following sources: - Debt 25%
- Preferred stock 20% - Common stock 55% In which:
- Owner’s equity including retained earnings and outstanding common stock has the
following information: Last year, H paid out an amount of 3500 VND per share as
dividends. The current market price is 70000 VND per share with a constant growth rate of
dividend being 8% per year.
- Preferred stock is issued with the issuing price of 95000 VND per share and dividend
is 10350 VND per share, issuing fee is 5000 VND per share.
- Borrowing from Bank A the amount of 100 million VND with the interest rate of
10% per year. The remaining amount of debt is borrowed from bank B with the interest rate
of 12% per year. Corporate Income Tax is 20%.
1/ Determine the cost of each source of financing
2/ Finding the WACC of company H
Cost of preferred stock: Kf = Df/Pf = 10350/(95000-5000) = 11.5%
Cost of common stock: Ke = D1/P0 + g = 3500*(1+8%)/70000 + 8% = 13.4%
Cost of debt borrowed from bank A: Kd(A) = Kdt(A)*(1-T) = 10%*(1-20%) = 8%
Cost of debt borrowed from bank B: Kd(B) = Kdt(B)*(1-T) = 12%*(1-20%) = 9.6%
The percentage of capital borrowed from bank A: W(A) = 100/2500 = 4%
=> The percentage of capital borrowed from bank B: W(B) = 25% - 4% = 21%
WACC = W(A)*Kd(A) + W(B)*Kd(B) + Wf*Kf + We*Ke
= 4%*8% + 21%*9.6% + 20%*11.5% + 55%*13.4% = 12.006%
CHAPER 5
Discounted Cash-flow Valuation (Income approach) Problem

1:
Company X is sold on the market with the price of 8000 million VND. The current amount
of net income being used to pay out to shareholders as dividends is 600 million VND. The
growth rate of dividend is expected to stay constantly at the level of 5% per year. The
average required rate of returns on investment capital on the market is determined at 15%
per year.
1. Determine the intrinsic value of Company X and what do you think about the current
market price of company X.
2. Mr.A and Mrs.B are considering an investment opportunity in X. The minimum

required rate of return of Mr.A is 12% and of Mrs.B is 17%.What do you think is their
decision if X is sold at the price of 7500 million VND?
1. The intrinsic value of Company X = D1/(R-g) = 600*(1+5%)/(15%-5%) = 6300m VND
=> The current market price of company X is higher than its intrinsic value
=> Company X is overvalued
2. If the required rate of return is 12%:
The value of company X = 600*(1+5%)/(12%-5%) = 9000m VND
=> For Mr.A with the minimum required rate of return is 12%, when X is sold at the price
of 7500 million VND, Mr.A will invest in X
If the required rate of return is 17%:
The value of company X = 600*(1+5%)/(17%-5%) = 5250m VND
=> For Mr.B with the minimum required rate of return is 17%, when X is sold at the price
of 7500 million VND, Mr.B will not invest in X
Problem 2:
Company ABC has a summarized income statement as follows: (Year N)
1. Net income 1000
2. Dividend 500
3. Retained earnings 500
4. Dividend per share 0.05

Assume that global financial markets are running well and stable, the average opportunity
cost of capital on the market is 15% per year. Determine the most appropriate transaction
price in the acquisition of ABC when:
1. ABC follows the payout policy of keeping dividend unchanged over years. ABC
issued common stocks only.
2. ABC commits to pay dividends with the constant growth rate of 3% each year.
Problem 3:
A company that majors in manufacturing consumer good has been in good condition with
the following financial data:
• Net income: 100.000 USD
• Dividend payout ratio is 60%, which is expected to be unchanged in the future
• The expected ROE is 12%
• Risk-free rate is 7%. Market risk premium is 3%. β is 1,2 Determine the value of
company.
D0 = E0*POR = 100,000*60% = 60,000
Discount rate: R = Rf + β*(Rm – Rf) = 7% + 1.2*3% = 10.6%
POR = 60% => Retention ratio (b) = 40%
=> g = b* expected ROE = 40%*12% = 4.8%
=> Value of company = D1/(R-g) = 60,000*(1+4.8%)/(10.6%-4.8%) = 1,084,137.93 USD
Problem 4:
Company ABC that majors in manufacturing consumer good has been in good condition
with the following financial data:
• Net income in Year N is 100.000 USD
• Dividend payout ratio is 60%
• ROE in Year N is 20%, which is assumed to be constant in the significantly growing

period.
• ABC has a beta of 1,2; risk-free rate is 5%, market risk premium is 4%.
• Assume that ABC keeps growing strongly in the next 4 years, then enters into a
more stable period with a growth rate being equal to the growth rate of the economy
at 5%. In the second period, it is expected that: ß = 1.
Determine the value of ABC.
D0 = E0*POR = 100,000*60% = 60,000 USD
Discount rate in the significantly growing period: R1 = Rf + β*(Rm – Rf) = 5% + 1.2*4% =

9.8%
=> g1 = b*ROE = 40%*20% = 8%
Discount rate in the more stable period: R2 = 5% +1*4% = 9%
=> Value of company: V 0=

D1
R 1−g 1
1−
[
(1+ g1)4
(1+ R 1)
4
+
] D5
( R 2−g 2 ) (1+ R 1)4
¿
60,000∗(1+ 8 %)
9.8 %−8 %
1− (1.084
1.0984
+ )
60,000∗( 1+ 8 % )4∗(1+5 %)
( 9 %−5 % )∗1.098 4
= 1,704,557.17
Year Dividend PV D0 60000

1 64800 59016.39 g1 8%
2 69984 58048.91 R1 9.80%
3 75582.72 57097.29 g2 5%
4 81629.34 56161.27 R2 9%
5 85710.80 1474233.31
>> V0 1704557.17
Problem 4’:
Company ABC that majors in manufacturing consumer good has been in good condition
with the following financial data:

period.
• ABC has a beta of 1,2; risk-free rate is 5%, market risk premium is 4%.
• Assume that ABC keeps growing strongly in the next 4 years, then enters into a
more stable period with a growth rate being equal to the growth rate of the economy
at 5%. In the second period, it is expected that: ß = 1, ROE’ = 16.67%.
D0 = E0*POR = 100,000*60% = 60,000 USD

9.8%
=> g1 = b*ROE = 40%*20% = 8%
g2 = b2*ROE’ => b2 = 5%/16.67% = 30% => POR2 = 70%
=> D5 = E5*POR2 = E0*(1+g1)^4*(1+g2)*POR2 = 100,000*(1+8%)^4*(1+5%)*70% =

99,995.94
=> V4 = D5/(R2-g2) = 99,995.94/(9%-5%) = 2,499,898.5
=> V0 = D1/(1+R1) + D2/(1+R1)^2 + D3/(1+R1)^3 + D4/(1+R1)^4 + V4/(1+R1)^4
= 60,000*(1+8%)/(1+9.8%) + 60,000*(1+8%)^2/(1+9.8%)^2 +
60,000*(1+8%)^3/(1+9.8%)^3 + 60,000*(1+8%)^3/(1+9.8%)^3 +
60,000*(1+8%)^4/(1+9.8%)^4 + 2,499,898.5/(1+9.8%)^4
= 1,950,262.75 USD
Problem 5:
Company T that majors in manufacturing consumer good has been in good condition with

period.
• Company T has a beta of 1,2; risk-free rate is 6%, market risk premium is 4%.
• Assume that Company T keeps growing strongly in the next 5 years, then enters into
a more stable period with a growth rate being equal to the growth rate of the
economy at 4%. In the second period, it is expected that: ß = 1.
Determine the value of Company T.
D0 = E0*POR = 200,000*55% = 110,000 USD

10.8%
=> g1 = b*ROE = 45%*20% = 9%
=> Value of company: V 0=

D1
R 1−g 1
1−
[
(1+ g1)5
5
+
] D6
(1+ R 1) ( R 2−g 2 ) (1+ R 1)
5
( )
5
110,000∗( 1+ 9 %) 1.095 110,000∗( 1+9 % ) ∗(1+ 4 % )
¿ 1− + = 2,280,512.46 USD
10.8 %−9 % 1.1085 ( 10 %−4 % )∗1.108 5

1 119900 108213.00 g1 9.0%
2 130691 106455.02 R1 10.8%
3 142453.19 104725.61 g2 4.0%
4 155273.98 103024.29 R2 10.0%
5 169248.64 101350.61
6 176018.58 1756743.931
>> V0 2280512.46
Problem 5’:
Company T that majors in manufacturing consumer good has been in good condition with

period.
• Company T has a beta of 1,2; risk-free rate is 6%, market risk premium is 4%.
• Assume that Company T keeps growing strongly in the next 5 years, then enters into
a more stable period with a growth rate being equal to the growth rate of the
economy at 4%. In the second period, it is expected that: ß = 1, ROE = 25%.
Determine the value of Company T.
D0 = E0*POR = 200,000*55% = 110,000 USD

10.8%
=> g1 = b*ROE = 45%*20% = 9%
g2 = b2*ROE’ => b2 = 4%/25% = 16% => POR2 = 84%
V5 = D6/(R2-g2) = 268,828.38/(10%-4%) = 4,480,472.96
=> V0 = D1/(1+R1) + D2/(1+R1)^2 + D3/(1+R1)^3 + D4/(1+R1)^4 + D5/(1+R1)^5

V5/(1+R1)^5
=> D6 = E6*POR2 = E0*(1+g1)^5*(1+g2)*POR2 = 200,000*(1+9%)^5*(1+4%)*84% =

268,828.38 USD

1 119900 108213.00 g1 9.0%
2 130691 106455.02 R1 10.8%
3 142453.19 104725.61 g2 4.0%
4 155273.98 103024.29 R2 10.0%
5 169248.64 101350.61
6 268828.38 2683027.12
>> V0 3206795.65
Problem 6:
FCFF of company X is expected to be 2 billion VND in the next year. 10 year treasury bond
has a yield of 10%, Returns on market index is 17%, beta of X is 1,3. The average cost of
debt is 10%.
Owner’s Equity: 30 billion VND
Debt: 10 billion VND
FCFF is expected to grow at a constant rate of 6% per year.

Determine the value of X knowing that corporate income tax is 20%.
Ke = R = Rf + β*(Rm – Rf) = 10% + 1.3*(17%-10%) = 19.1%
WACC = W(d)*Kdt*(1-T) + W(e)*Ke
= 1/4*10%*(1-20%) + 3/4*19.1% = 16.325%
=> Value of X: V0 = FCFF1/(WACC-g) = 2b/(16.325%-6%) = 19.37b VND
Problem 7: Company X has the following data:
• Net income: 150 million USD
• Fixed capital investment: 100 million USD
• Depreciation: 50 million USD
• Working capital investment: 50 million USD (không nói gì nghĩa là đầu tư thêm)
• Net borrowing (the difference between new principal (debt) issuing and old principal
(debt) paid out): 15 million USD
• According to the 5-year plan, net income, fixed capital investment, working capital
investment, depreciation and net borrowing are expected to grow at 10% per year.
Determine the value of X:
a, based on FCFE discount model? After the first 5 years, X grows constantly at the rate of
5% per year. Required rate of returns on equity is 12% per year.
b, based on FCFF discount model? Current interest expense is 80 million USD with the rate
of 10% per year. In the first 5 years, FCFF is expected to grow at 10% per year. After that,
X plans to keep FCFF unchanged, cost of debt in the 6 th year is the same as that of the 5th
year. Required rate of returns on equity after first 5 years reaches 12% per year. Optimal
debt ratio of X is 25% (Debt/total assets). Corporate income tax is 20%.
a. FCFE0 = NI + NCC – FCInv – WCInv + New debt – Old debt
= 150 + 50 – 100 – 50 + 15 = 65m USD
V5 = FCFE6/(R-g2) = FCFE0*(1+g1)^5*(1+g2)/(R-g2)
= 65*(1+10%)^5*(1+5%)/(12%-5%) = 1570.25m USD
=> V 0=
FCFE 1
R−g 1 [1−
(1+ R)
5
]
(1+ g 1)5
+
V5
(1+ R)
5 ¿
65∗(1+10 %)
12%−10 % (1−
1.125)
1.15 1570.25
+
1.125
= 1199m USD
Year FCFE PV FCFE0 65
1 71.5 63.84 g1 10.0%
2 78.65 62.70 g2 5.0%
3 86.52 61.58 R 12.0%
4 95.17 60.48
5 104.68 59.40
6 109.91731 891.0004598
>> V0 1199.00
b. FCFF0 = NI + Int*(1-T) + NCC – FCInv – WCInv
= 150 + 80*(1-20%) + 50 – 100 – 50 = 114m USD
Required rate of return in the first 5 years:
R1 = WACC = 0.25*Kdt*(1-T) + 0.75*Ke = 0.25*10%*(1-20%) + 0.75*12% = 11%
V5 = FCFF6/(R2-g) = FCFF0*(1+g)^6/(R2-g)
= 114*(1+10%)^6/(12%-10%) = 10,097.9m USD
[ ] ( )
5
FCFF 1 (1+ g) V5 114∗(1+10 %) 1.1
5
10,097.9
=> V 0= 1− 5
+ 5 ¿ 1− + = 6,547.39m
R 1−g (1+ R 1) (1+ R 1) 11%−10 % 1.11 5
1.115
USD
Year FCFF PV FCFF0 114

1 125.4 112.97 g 10.0%
2 137.94 111.96 R1 11.0%
3 151.73 110.95 R2 12.0%
4 166.91 109.95
5 183.60 108.96
6 201.96 5992.610801
>> V0 6547.39
Problem 8: Company ABC has the following data:
• Net income: 250 million USD
• Fixed capital investment: 80 million USD
• Depreciation: 80 million USD
• Working capital investment: 50 million USD
• Net borrowing (the difference between new principal (debt) issuing and old principal
(debt) paid out): 20 million USD
• According to the 5-year plan, net income, fixed capital investment, working capital
investment, depreciation and net borrowing are expected to grow at 10% per year.
Determine the value of ABC:
a, based on FCFE discount model? After the first 5 years, X grows constantly at the rate of
4% per year. Required rate of returns on equity is 12% per year.
b, based on FCFF discount model? Current interest expense is 100 million USD with the
rate of 12% per year. In the first 5 years, FCFF is expected to grow at 8% per year. After
that, ABC plans to keep FCFF unchanged, cost of debt in the 6 th year is the same as that of
the 5th year. Required rate of returns on equity after first 5 years reaches 15% per year.
Optimal debt ratio of X is 25% (Debt/total assets). Corporate income tax is 20%.
a. FCFE = NI + NCC – FCInv – WCInv + New debt – Old debt
= 250 + 80 – 80 – 50 + 20 = 220
FCFE1 = FCFE0 * (1+g1) = 242
FCFE2 = FCFE0 * (1+g1)^2 = 266.2
FCFE3 = FCFE0 * (1+g1)^3 = 292.82
FCFE4 = FCFE0 * (1+g1)^4 = 322.10
FCFE5 = FCFE0 * (1+g1)^5 = 354.31
FCFE6 = FCFE5 * (1+g2) = 368.48
V5 = FCFE6/(r-g2) = 4606.06
=> V0 = FCFE1/(1+r) + FCFE2/(1+r)^2 + FCFE3/(1+r)^3 + FCFE4/(1+r)^4 +

FCFE5/(1+r)^5 + V5/(1+r)^5 = 3656.06
b. FCFF = NI + Int*(1-T) + NCC – FCInv – WCInv
= 250 + 100*(1-0.2) + 80 – 80 – 50 = 280
Kdt = 12%
Ke1= 12%
Ke2 = 15%
WACC1 = D/V*Kdt*(1-T) + E/V*Ke1 = 25%*12%*(1-20%) + 75%*12% = 11.4%
WACC2 = D/V*Kdt*(1-T) + E/V*Ke2 = 25%*12%*(1-20%) + 75%*15% = 13.65%
FCFF0 = 280
FCFF1 = FCFF0 * (1+g1) = 302.4
FCFF2 = FCFF0 * (1+g1)^2 = 326.59

FCFF3 = FCFF0 * (1+g1)^3 = 352.72
FCFF4 = FCFF0 * (1+g1)^4 = 380.94
FCFF5 = FCFF0 * (1+g1)^5 = 411.41
FCFF6 = FCFF5 = 411.41
V5 = FCFF6/WACC2 = 3014.01
=> V0 = FCFF1/(1+WACC1) + FCFF2/(1+WACC1)^2 + FCFF3/(1+WACC1)^3 +

FCFF4/(1+WACC1)^4 + FCFF5/(1+WACC1)^5 + V5/(1+WACC1)^5 = 3033.7
Problem 9:
ABC has the following data:
- Total assets: 2000 billion VND.
- Fixed capital investment: 100 billion VND
- Depreciation: 65 billion VND
- Working capital investment: 35 billion VND.
- Net borrowing (the difference between new principal (debt) issuing and old principal
(debt) paid out): 20 billion VND
- ROA (net income/total assets): 12%
- Debt ratio: 0,4 (Debt/total assets) which is kept unchanged over time.
ABC has presented their plan as follows:
- In the next 3 years, net income, fixed capital investment, depreciation, working
capital investment and net borrowing grow at 10% per year.
- After that, ABC grows at a constant level of 5% and at this point of time, Rf is
expected to be 10%, returns on market index is 16%, beta of ABC is 1,5.
Determine the value of ABC based on FCFE discount model.
Net income = ROA*Total assets = 12%*2000 = 240
FCFE = NI + NCC – FCInv – WCInv + New debt – Old debt = 240 + 65 – 100 – 35 + 20 =
190
Equity = Total assets*(1-Debt ratio) = 2000*(1-0.4) = 1200
=> R1 = ROE = Net income/Equity = 240/1200 = 20%

R2 = Rf + β*(Rm – Rf) = 10% + 1.5*(16%-10%) = 19%
FCFE1 = FCFE0*(1+g1) = 190*(1+10%) = 209
FCFE2 = FCFE0*(1+g1)^2 = 229.9
FCFE3 = FCFE0*(1+g1)^3 = 252.89
FCFE4 = FCFE3*(1+g2) = 252.89*(1+5%) = 265.53
=> V3 = FCFE4/(R2-g2) = 265.53/(19%-5%) = 1896.64
=> V0 = FCFE1/(1+R1) + FCFE2/(1+R1)^2 + FCFE3/(1+R1)^3 + V3/(1+R1)^3 = 1577.76
Problem 10:
Company A has the following documents that show its performance:
1. Operating activities:
- Revenues: 10.000 million VND
- Variable cost = 60% Revenues
- Fixed cost (interest and depreciation expense not included) : 500 million
- Depreciation expenses in one operating period: 1.500 million VND
- Interest expenses in one operating period: 500 million VND
2. Investing activities:
- Buying new properties (fixed assets): 1.000 million VND
- Working capital investment: 100 million VND
3. Financing activities:
- Borrowing from Bank A: 600 million VND.
- Principal of old debts paid out: 500 million VND.
Determine the free cash flow to the firm (FCFF) and Free cash flow to Equity (FCFE).
Knowing that Corporate Income tax is 20%
EBT = 10000 – 10000*60% - 500 – 1500 – 500 = 1500
Net income = 1500*(1-0.2) = 1200
FCFF = NI + Int*(1-T) + NCC – FCInv – WCInv = 1200 + 500*(1-0.2) + 1500 – 1000 –

100 = 2000
FCFE = NI + NCC – FCInv – WCInv + New debt – Old debt = 1200 + 1500 – 1000 – 100 +
600 – 500 = 1700

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QUESTIONS AND PROBLEMS

Overview of Corporate Valuation

1. What is a business enterprise? Which characteristics of a business enterprise do we have

2. How can we differentiate Cost, Price and Value? Give an example.

3. Analyze the definition of Value of a business enterprise and the definition of

5. When do you need to value a business?

8. Is the date of the valuation important? Do business valuation expire?

10. What information do you think is needed to perform a business valuation?

Section 2.1: Questions

11. What is general theoretical basis of asset-based approach in business valuation?

14. Explain theoretical basis and contents of Quantifying Goodwill Method.

15. According to the economic concept, how can we define Goodwill?

16. What are the characteristics of Goodwill?

18. What is the advantages and disadvantages of Quantifying Goodwill Method?

Section 2.2: Problems

Company X has a summarized balance sheet at 31/12/N

Currency unit: million VND

Assets Book value Sources of financing Book value

Current Assets 700 Liabilities 900

Non-current Assets 1800 Owner’s Equity 1600

Total Assets 2500 Liabilities+ Owner’s Equity 2500

Determining the value of company X.

Determine the fair value of total assets

- Receivables: Downward adjustment in the value of total assets: -80*70% = -56m

=> Va = 2500 – 56 – 60 + 200 + 41.92 – 10 +50 = 2665.92m

Determine the fair value of liabilities: Vl = 900 – 100 = 800

Determine NAV = Va – Vl = 2665.92 – 800 = 1865.92

Company X has the following document: A summarized Balance Sheet at 31/12/N

Currency unit: million VND

Assets Book value Sources of financing Book value

A. Current Assets 500 A. Liabilities 600

B. Non-current Assets 1500 B. Owner’s Equity 1400

Total Assets 2000 Liabilities+ Owner’s Equity 2000

6. Company’s capital in partnership business, after being revalued, goes up by 20

Determining the value of company X.

Total Assets: 2000

Determine the fair value of total assets

- Receivables: Downward adjustment in the value of total assets: -40m

=> Va = 2000 – 40 – 42 – 30 + 150 + 30.72 + 75 + 20 – 94.86 = m

Determine the fair value of liabilities: Vl = 600

Determine NAV = Va – Vl = – 600 = m

A business enterprise has the following document:

- Obsolete and unserviceable raw materials: 80 million VND

- Inventory of Product A has been revalued upwards by 180 million VND

3. Tangible fixed assets are revalued upwards by 300 million VND

4. Intangible fixed assets are revalued downwards by 60 million VND

2. Owner’s Equity has a recorded value of 1800 million VND.

Determining the value of company X.

Total Assets: 4500m

Determine the fair value of total assets

- Receivables: Downward adjustment in the value of total assets: -(100+160*20%) = -

- Raw materials: Downward adjustment in the value of total assets: -80m

5. Long-term investment: Upward adjustment in the value of total assets: +120m

=> Va = 4500 – 132 – 100 – 80 + 180 – 360 + 300 – 60 + 120 = 4368m

Determine the fair value of liabilities: Vl = 2700 – 300 = 2400m

Determine NAV = Va – Vl = 4368 – 2400 = 1968m

Company X has a summarized Balance Sheet at 31/12/N

Currency Unit: million VND

Assets Book value Sources of financing Book value

Current Assets 1000 Liabilities 1200

Total Assets 2700 Liabilities+ Owner’s 2700

3. Company’s capital in partnership business, after being revalued, goes up by 50

Bt 20 B1 = B0(1+g) = B2 = 221.1 = B3 = 24.2*1.1