Estimate the Value of a Privately-Held Firm Based on the Following

question 38

Multiple Choice

Estimate the value of a privately-held firm based on the following information: total market value or capitalization value) of a comparable firm = $200,000; net income of a comparable firm = $40,000; number of shares outstanding for the comparable firm = 20,000; net income for the target firm = $15,000; and number of shares outstanding for the target firm = 10,000.

• A) $5.00
• B) $7.50
• C) $10.00
• D) $12.50
• E) $15.00

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Definitions:

Net Income

The total profit of a company after all expenses, including taxes and interest, have been deducted from revenues.

Direct Method

A method of preparing the cash flow statement where actual cash flow information from the company’s operations segment is used directly.

Indirect Method

A way of calculating cash flows from operating activities for the cash flow statement by adjusting net income for changes in non-cash items.

Quality

The degree of excellence of a product or service, or its conformity to established standards or specifications.