Business Valuation Quiz for Commerce and Business Administration Students

Valuing Young or Startup Companies

• Venture capital valuations often utilize methods such as the Scorecard Method, Venture Capital Method, or Berkus Method to assess startups' potential.
• Discounted Cash Flow (DCF) can also be applied, although it may involve significant assumptions regarding future revenue.

WACC vs. Component Cost of Capital

• A key consideration in project acceptance or rejection is the project's risk relative to the firm’s overall risk profile, reflected in the Weighted Average Cost of Capital (WACC).
• Projects with returns exceeding the WACC are typically accepted, while those below may be rejected.

Valuation of Loss-Making Companies

• Focus on growth potential rather than current earnings; projected revenue growth and market share are critical indicators.
• Consideration of future capital needs and the company’s path to profitability is essential in assessing value.

Relationship Between Price of Bonds, Coupon, and Current Yield

• Bond prices inversely relate to interest rate movements: as rates rise, bond prices fall and vice versa.
• Current yield is calculated as the annual coupon payment divided by the bond’s market price, illustrating the yield measure's responsiveness to price changes.

Ownership Share in Delta Systems for Angel Ventures

• Angel Ventures should analyze the company's valuation and funding needs to determine an appropriate ownership stake, often ranging from 10% to 30% based on typical investment sizes and valuations in startup rounds.