11 Questions
What is the formula for calculating Business Value in the Earnings Approach?
Earnings ÷ Capitalization Rate
What is the purpose of the Capitalization Rate in the Earnings Approach?
To represent the required rate of return for an investor
What is the business value of Cecilia Company, given an annual earnings of P400,000 and a capitalization rate of 10%?
P4 Million
What is the expected annual cash flow of Cecilia Company?
P500,000
What is the average annual net income of SteadyTools Inc.?
PHP 500,000
What is the business value of SteadyTools Inc., given an average annual net income of PHP 500,000 and a required rate of return of 12%?
PHP 4,166,667
What is the purpose of the Earnings Approach in business valuation?
To estimate a firm's worth based on earnings forecasts
What is the capitalization rate in the Earnings Approach?
The company's required rate of return
What is the result of dividing the earnings by the capitalization rate in the Earnings Approach?
Business Value
What is the Earnings Approach used for?
To estimate a firm's worth or value
What is the name of the method used to estimate a firm's worth or value based on earnings forecasts?
Discounting Future Earnings Approach
Understand the earnings approach method of business valuation, including capitalizing past earnings and discounting future earnings. Learn how to calculate these values and discuss the two common methods under the earnings approach.
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