Week 7 Solutions - Week 7 Solutions Exercise 17-7 Question:...

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Week 7 Solutions Exercise 17-7 Question : Group these valuation approaches into asset-based, income approach, and market approach types: a) adjusted book value method b) capitalization of earnings method c) discounted future earnings method d) guideline public company method e) merger and acquisition method f) rules of thumb approach Solution: a. Asset approach. b. Income approach. c. Income approach. d. Market approach. e. Market approach. f. Market approach. Exercise 17-14 Question : Solution: a. and b. Year Book Value Abn. Earn. P/V Factor P/V 1 $220,000 $23,000 .9091 $20,909 2 254,000 14,600 .8265 12,067 3 281,300 6,870 .7513 5,161 Totals $44,470 $38,137 c. Business valuation = $220,000 + $38,137 = $258,137 Exercise 17-15 Question : Earnings valuation models. Bayview Real Estate Development… Solution: a. Business valuation with equal weighting of earnings: Average earnings = ($2,300,000 + $2,600,000 + $2,000,000 + $1,400,000 + $1,800,000) / 5 years = $2,020,000 Business value = $2,020,000 / .15 = $13,466,667
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b. Business valuation with current earnings weighted more heavily: Year Earnings Weight Factor Weighted Earnings 1 $2,300,000 1 $2,300,000 2 2,600,000 2 5,200,000 3 2,000,000 3 6,000,000 4 1,400,000 4 5,600,000 5 1,800,000 5 9,000,000 Totals 15 $28,100,000 Weighted average earnings = $28,100,000 / 15 = $1,873,333
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Week 7 Solutions - Week 7 Solutions Exercise 17-7 Question:...

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