Question

a)The term value has various meaning and expressions. Discuss the following expressions of value

i.Fair Market Value

ii.Intrinsic value

iii.Going concrn valuee

iv.Book value

b)Explain the concept of ‘Efficient Capital Market’ stating its relevance in valuation

c)List and discuss five factors which should be considered when valuing a corporation

d)List and discuss four characteristics or features of a good or better valuation exercise

Answer 1

a]

i]

FMV is the value of the asset or property in the market. That is, FMV is the price that the asset or property would get if sold in the open market. This value is called "fair market value" since it is the fair price determined by buyers and sellers, and it is not any notional or estimated price.

ii]

Intrinsic value of a security such as a bond or share is calculated to determine its worth. It is done by analysing the cash flows of the security. That is, the cash flows of the bond (interest and principal payments) or share (dividends) are valued using discounting techniques to find their present value. This value is called intrinsic value

iii]

Going concern value is the value of a business, assuming that it will continue in business forever. It is opposed to liquidation value, which assumes that the business will be sold off today.

iv]

Book value is the value of an asset, liability or equity in the books of accounts. It is the value at which it is shown in the balance sheet. Book value may not be equal to its market value or liquidation value or replacement value or purchase cost.