Business Valuation Questions. All question has been attached. 13 question.Questions on Business Valuation Business Valuation Questions. All question has been attached. 13 question.It involves case studies. True/false and multiple choice questions.

1.What are the main pitfalls of a “multiple of book value” as a means of valuing a company?

2.What could make the ratio called (current) Enterprise Value/EBITDA lower than the current P/E ratio?

3. Referring to the paragraphs from one of my consulting assignments that follow here, explain what I did, and why I did it.On this question, you can be brief. A couple of sentences is enough.

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I also note xxxx’s salary figure, as it is specified under “Compensation of officers” in the tax returns. Because the true net income of the firm must be revealed, in order to estimate the value of XXX, I investigated what an arms-length salary would likely have been, for a new CEO hired by a new (potential) owner. For this estimation, I utilized a unique and highly-regarded salary source, ERI Economic Research Institute’s “Executive Compensation Assessor.” For a CEO of a $5,000,000 firm in Washington, DC, in Computer Software services or Computer Programming, the total compensation estimate is $296,184. I subtracted that figure from the xxxx salary, and added it to observed 2011 net income under the row title “Implicit extra taxable income.” In the next line (ADDENDUM,”Financials”), I estimated and subtracted a 20% marginal tax rate on the “new” net income, arriving at “Implicit net income, after salary and tax adjustment.”

4. One criticism of the DCF approach to valuation is that it makes it harder to do a good valuation, compared to “relative valuation (multiples)” in recognizing the value of brands and intangible assets.

True/False

5. Let’s assume that a firm’s return on invested capital (ROIC) can be raised by 1%, say, by an improvement in efficiency or by lowering the cost of goods sold.

Given this 1% increase in ROIC, when a firm’s “starting” return on capital is low, it will show a bigger percentage growth in net income or EPSthan would be seen if the firm’s “starting” return on capital is high.

True/False

6. Do a web search for APV–Adjusted Present Value”. The conventional APV approach sometimes yields a higher value for a GROWING business than the cost of capital (DCF) approach because it views tax savings from debt as less risky than operating profits, AND the cost of capital approach also adjusts the cost of capital upward for a debt burden that will likely grow as sales increase, and as debt as a percentage of total capital stays constant. Choose the correct answer.

A. True, because a growing firm, if it is to maintain a constant debt-total assets ratio, will issue more bonds. And this will assume, perhaps, more risk to be incorporated into the WACC.

B. False, because a growing firm, if it is to maintain a constant debt-total assets ratio, will issue more bonds. And this will assume, perhaps, that the WACC drops, and that the unlevered beta is the same as the levered beta.

C. True, because a growing firm, if it is to maintain a constant debt-total assets ratio, will issue more bonds. And this will raise the present value of the tax savings from deducting interest.

D. APV will value a company more highly if the analyst under-estimates bankruptcy costs.