Valuation Tools and Techniques Assignment Answers

As a finance professional, you will be often asked to value the assets of an organisation. You wish you could just see a building and tell that it is worth $100 million. But that is not the way. So, through this blog, a finance assignment help provider is going to help you write the valuation tools and techniques assignment answers.

Question 1

The first question here is based on the perpetuity formula. I will not waste your time in going over what perpetuity is, how should you benefit from perpetuity, etc. Instead, I am going to hit the right nerve with giving you the formula for perpetuity and telling you how this question will be solved with perpetuity formula.

[Cash Flow x (1 + g)] / (r - g) is the formula that you are going to use in the question.

Cash flow = $12 million

g = 3% = 0.03

r = 7% = 0.07

Hence, perpetuity is

= [12,000,000 x (1+0.03)] / (0.07 - 0.03)

= (12,000,000 x 1.03) / (0.04)

= 12360000/0.4

= 30,900,000

= $30.9 million

Question 2

Question 2 is based on the DuPont framework. The return on invested capital (ROIC) is 6.5%; weighted average cost of capital (WACC) is 6.5% and shows a 0% growth rate.

Every company invests its money into various assets and expects a good return so as to ensure maximum profits. But not every investment can be a profitable one and not every company knows where to invest. Hence, as a finance professional, it is your responsibility to guide the company towards investing in the right paths.

Therefore, valuation tools and techniques assignment answers are a way that the university teaches you will tread in these careful waters.

For that, you must know how to find out the DCF or Discounted Cash Flow where you will forecast the cash flow of an investment and then estimate its value. This will help you to determine if the investment is fruitful or not.

The formula to calculate DCF is pretty simple.

DCF = ? CFn / (1+r)n

CF is the cash flow and r is the discount rate. In case of the absence of the discount rate, you can use WACC.

Question 3

This question is an extension of question 2. Here, you need to shift the focus toward profits and profitability. Now, this question asks you to raise the revenue/invested capital to 85%. The growth rate is still at 0%. The return on invested capital (ROIC) and return on equity (ROE) are going to change when you are rising the revenue/invested capital. For that, you have to see the relationship between them and then comment on how they are changing.

For example, ROIC is inversely proportional to the invested capital. Therefore, if you are going to raise invested capital, ROIC is going to dip towards the downward scale.

Furthermore, it is known that the value of equity and the invested capital, both, are measures of the value of the firm. While considering equity value, the debts of the firm are excluded (unlike invested capital). Therefore, when there is an increase in the invested capital, the value of equity is also going to increase.

The valuation ratios of the estimates are based on various factors like the current price of one share of the company, the earnings of the shares, etc. A rise in invested capital would lead to a higher share price of the company. Hence, rising the invested capital will mean a positive increase in the valuation ratios.

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In the blog post above, I have only talked about 3 questions out of the many there are. Owing to the lack of time and space in this blog, I could only guide you to these. But do not worry because finance assignment help providers at My Assignment Services do not leave you hanging in between. If you have any additional query in these questions, you can reach out to us for a live one-on-one session. And if you want an answer prepared by the expert that is 100% original, unique and according to the marking rubric, you can write to our team for a reference assignment solution.