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MCQ on Valuation Principles and Framework

1. Which of the following is not a general principle involved in a business valuation?
(A) Value is determined at a specific point in time
(B) Value is prospective
(C) Value is influenced by liquidity
(D) Valuation always depends on the fact that who is valuing what

2. Which of the following is equal to the present value of all cash proceeds received by a stock investor?
(A) Value
(B) Retention ratio
(C) Dividend payout ratio
(D) Discount rate.

3. Discounted cash flow valuation is based upon______.
(A) Expected future discount that is likely to be earned
(B) Real worth of the business
(C) Expected future cash flows and discount rates
(D) Earning capacity of the company

4. Which of the following do financial analysts consider least important when assessing the long-run economic and financial outlook of a company?
(A) Expected return on equity
(B) Prospects of the relevant industry
(C) Expected changes in EPS
(D) General economic conditions

5. Which of the following is required to be taken into consideration while valuing equity shares of the company?
(A) Size of the block of shares
(B) Restricted transferability aspect
(C) Dividends
(D) All of the above

6. Provisions relating to ‘valuation by registered valuer’s are contained in –
(A) Section 247 of the Companies Act, 2013
(B) Section 242A of the Income-tax Act, 1961
(C) Section 347 of the Companies Act, 2013
(D) Section 240AB of the Income-tax Act, 1961

7. Which of the following is the correct formula for the Capitalization of Earning Method?
(A) ‘Net Operating Income divided by ‘Capitalization Rate’
(B) ‘Net Profit’ divided by ‘Discount Rate’
(C) ‘Net Operating Income divided by ‘Growth Rate’
(D) ‘Dividend Per Share’ divided by ‘Annuity Rate’ multiplied by the total number of shares

8. Which of the following is not a method of a business valuation?
(A) Asset based
(B) Earnings based
(C) Market based
(D) Equity-based

9. In which of the following cases valuation is essential?
(A) Conversion of debt instruments into shares.
(B) On directions of Tribunal or Authority or Arbitration Tribunals.
(C) When issuing shares to the public either through an Initial Public Offer or by the offer for sale.
(D) All of the above

10. Which of the following is another name for the required return, on a stock?
(A) Discount rate
(B) Dividend payout ratio
(C) Retention ratio
(D) Value

11. Net Realizable Value means ______.
(A) Price the buyer is ready to pay
(B) Same value as the present value
(C) Value net of expenses
(D) Higher of the net selling price and value in use

12. Analysts commonly consider all of the following to be indicators that the market is overvalued except.
(A) High average P/E ratio
(B) High average price-to-book ratio
(C) High average dividend yield
(D) All of the above

13. Present value means –
(A) Value in use
(B) Value of future cash flows
(C) Value calculated using IRR
(D) Present value that buyer is ready to pay

14. Which of the following best describes the replacement value of a business?
(A) Value if sold off piece-meal
(B) Value to replace assets with new
(C) Cost of setting up an equivalent venture
(D) Net present value of current operations

15. Which of the following is normally used as discounting factor under the discounted cash flow valuation?
(A) Cost of equity
(B) Cost of debt
(C) Annuity factor
(D) Overall cost of capital

16. Value of perpetual bond is calculated by:
(A) Interest divided by rate of cost of equity
(B) Fixed income on security divided by the required rate of return
(C) Fixed income on security divided by growth rate
(D) Interest divided by rate of growth

17. Which of the following best defines the market capitalization for a company’s shares?
(A) When a company is listed L e. goes ‘public’
(B) When a company issues new shares and thus increases its capital
(C) Current share price
(D) Share price × number of shares in issue

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