VALUATION CONCEPTS AND METHODOLOGIES MULTIPLE CHOICE PROBLEM. Write the letter of the best answer before the number of the question or statement being answered. 1. WW Inc. recently has had financial difficulty and is being liquidated The firm has a liquidation value of Php 2,000,000 - Php 800,000 from the fixed assets that served as collateral for the mortgage bonds and Php 1,200,000 from all other assets (all prior claims have been satisfied). The firm's current capital structure is as follows: Unsecured bonds - Php 1,000,000 Mortgage bonds - Php 800,000 Preference shares - Php 200,000 Ordinary shares - Php 500,000 How much will the ordinary shareholders from the liquidation? a. Php 1,000_000 b, Php 656.667 c. Php 396,000 d. Php 0 2. Tang Mining is considering the acquisition of Zang Mining at a cash price of Php 6,000,000. The primary motivation for Tang's purchase of Zang is for a special piece of drilling equipment that it believes will generate after-tax cash flows if Php 2,000,090 per year during the next 5 years. Zang Mining has liabilities of Php 9,000,000 and Tang estimates that it can sell the remaining assets Php 6,500,000. Tang will use a 15 percent cost of capital for evaluating the acquisition. Based on this information, what is the net value of the special drilling equipment? a. Php 1,795,890 b. Php 1,500,000 c. Php (1,795,680) d. Php (1,500,000) 3. At year end, Lysle Company balance sheet showed total assets of Php 50 million, total liabilities of Php 30 million, and 500,000 shares of ordinary shares outstanding. If Lysle could sell its assets for Php 40 million, Lysle liquidation value per share of ordinary share is a. Php 40.00 b. Php 20.00 c. Php 10.00 d. Php 5.00VALUATION CONCEPTS AND METHODOLOGIES 4. A firm reported current assets of Php 1,000,000, which can be quidated at 80 percent of book value. Total liabilities, including preferred stock, equal Php 270,000. The firm has 20,000 shares of common stock outstanding. What is the liquidation value per share of common stock? a. Php 50.00 b. Php 40.00 c. Php 36.50 d. Php 26.50 5. Kristine, a shareholder, received P10 per share as liquidation value for the 1,000,000 shares of Cathy Company that she owned. Kristine owned 10% ownership stake in Cathy Company. How much was the liquidation value of the Cathy Company? a. Php 10 million b. Php 50 million c. Php 100 million d. Php 124 million 6. Magic Homes is to be liquidated. All creditors, both secured and unsecured, are owed Php 2 million. Administrative costs of L quidation and wages payments are expected to be Php 500,000. A sale of assets is expected to bring Php 3 million after all costs and taxes. What is the liquidation value of Magic Homes? a. Php 3,000,000 b. Php 2,000,000 c. Php 1,000,000 d. Php 500,000 7, The PQ Partnership is not going well, and the partners have decided to liquidate the business. The partners share income and loss in a ratio of 2:1. PQ Partnership reported cash of Php 50,000 and building valued at Php800,000, They owe Php 500,000 to various creditors. Upon checking with realtors, they can sell the building at Php 600,000 based on current prices, How much is the liquidation value of PQ Partnership? a. Php 350.000 b. Php 150,000 c. Php 850,000 d. Php 650,000VALUATION CONCEPTS AND METHODOLOGIES B. Leth Company is currently undergoing liquidation proceedings and is consulting with potential buyers about the amount it can recover from the sale of its assets with book value of P7,000,000 Based on the quotations, the assets can fetch price of P6,000,000 if it will be sold within one year as negotiations and bidding will allow interested buyers to compete for the purchase. An interested buyer is willing to pay for P4,000,000 to purchase the assets now, Leth Company has liabilities to settle amounting to P2,000,000. How much is the orderly liquidation value of Leth Company? a. Php 6,000,000 b. Php 5,000,000 c. Php 4,000,000 9. Refer to Leth Company. How much is the forced liquidation value of Leth Company? a. Php 6,000.000 b. Php 5,000,000 c. Php 4,000,000 d. Php 2,000,000 10. A firm's common stock currently sells for Php 75 per share. The firm has total assets of Php 1,000,000 and total liabilities, including preferred stock, of Php 350,000. If the firm has 10,000 shares of common stock outstanding. how much is the liquidation value per share is this approximates book value? a. Php 100 b. Php 75 c. Php 65 d. Php 35