INCOME BASED VALUATION

1. HBB Company for the last ten years, has earned and had cash flows of about Php 500,000 every year. As per the predictions of the company's earnings, the same cash flow would continue for the foreseeable future. The expenses for the business every year is about Php 100,000 only. Based on the available public information a Php 4 million Treasury bond has a prevailing return of Php 400,000 annually.

Using Capitalization of Earnings approach, what is the value of HBB Company?

a. Php 4,000,000.00

b. Php 3,000,000.00

c. Php 2,000,000.00

d. Php 1,000,000.00

2. HCB Company for the last ten years, has earned and had cash flows of about P600,000 every year. As per the predictions of the company's earnings, the same cash flow would continue for the foreseeable future. The expenses for the business every year is about P500,000 only. Based on the available public information a Php 4 million Treasury bond has a prevailing return of Php 40,000 quarterly

Using Capitalization of Earnings approach, what is the value of HCB Company?

a. Php 3,000,000.00

b. Php 2,500,000,00

c. Php 3,500,000.00

d. Php 1,000,000.00

3 Heart, Inc plans to sell its business and has used Capitalization of Earnings to be an appropriate valuation method with a stable cashflow of Php 1,000,000.00 for the last 5 years. Forecast shows that similar level of cashflow would continue in the next several years With the stability of the business it was sold to HBB, Inc. for Php 6,000,000.00 with premium of Php 1,000,000.00. Similar instruments based on the available data is a Treasury Note with a determined quarterly interest rate. Annual Operating Expenses isPhp 600,000.00 Compute for the capitalization rate used by Heart, Inc.

a. 2%

b. 4%

c. 8%

d. 10%

4. Hai-dee is looking to buy a property that costs Php115,000, and can be leased out for Php750 a month. She has done some research and has determined the net operating expenses to be Php5,000 per year. Her desired cap rate is 10%. What is the appraisal value of this property using the capitalization of earnings approach?

a. Php 40,000.00

b. Php 42,500.00

c. Php 45,000.00

d. Php 50,000.00

5. Heinz, Inc. expects to generate earnings over the next five years of Php50,000.00, Php60,000.00; Php65,000.00, Php70,000.00 and Php 75,000.00 Using the Capitalization of Earnings Method, what is the estimated value of the firm using 10.00% required rate of return?

a. Php 640,000.00

b. Php 657,378.72

c. Php 657,738.72

d. Php 604,000.00

6. Herbert, Inc. expects to generate earnings over the next five years of Php50,000.00; Php60,000.00, Php65,000.00, Php70,000.00 and Php75,000.00. Using the Capitalization of Earnings Method, what is the estimated value of the firm using 8.00% required rate of return?

a. Php 600,000.00

b. Php 800,000.00

c. Php 500,000.00

d. Php 700,000.00

7. Ernesto, Inc. has projected average earnings every year of Php 100 Million. Debt to Equity Ratio is 3.1. After tax cost of debt is 5% while cost of equity is 10% The Board of Directors of the companydecided to sell the company for P1 Billion. Compute for the Economic Value Added (EVA)

a. Php 37,500,000.00

b. Php 50,000,000.00

c. Php 0.00

d. Php 25,000,000.00

8. Using Weighted Average Cost of Capital (WACC), ignoring taxes, compute the cost of capital of a company with debt ratio of 0.75:1 and is paying yearly average interest for its loans of 4% and dividend rate of 5% yearly.

a. 4.00%

b. 4.25%

c. 4.50%

d. 5.00%

9. Using Capital Asset Pricing Method (CAPM), compute for the cost of capital (equity) with risk-free rate of 5%, market return of 12% and Beta of 1.3.

a. 14.01%

b 14.10%

C 14.00%

d. 14.11%

10. Using Capital Asset Pricing Method (CAPM), compute for the cost of capital (equity) with risk-free rate of 4%, market return of 8% and Beta of 1.5.

a. 10.00%

b. 11.00%

c. 12.00%

d. 13.00%