MCQs on "Valuation of Shares and Goodwill": Find the multiple choice questions on "Valuation of Shares and Goodwill", frequently asked for all competitive examinations.
Here are a few MCQs on Valuation of Shares and Goodwill for your better understanding of the topic.
Q:1.
When valuing goodwill, which of the following methods is used?
- A. Weighted profit method
- B. Weighted profit method
- C. Super profit method
- D. All of the above
Explanation: By comparing the company’s market capitalization to the book value of its net identifiable assets, an implied fair value of goodwill may be computed.
Q:2.
What is the basic objective of stock valuation?
- A. Employees can buy shares and keep them for the duration of their employment.
- B. To buy a block of shares in order to gain control of the company
- C. To make a loan backed by stock as collateral.
- D. All of the above
Explanation: The purpose of stock valuation is to forecast future market values so that investors may schedule their sales and purchases of investments. The stock valuation basics strive to value the stock’s intrinsic value, which reflects the company’s profitability and future market worth.
Q:3.
Which of the following variables has no impact on a company’s goodwill?
- A. The managerial effectiveness of a corporation.
- B. Nature of business
- C. Customers’ locations are determined by a company’s customers.
- D. None of the above
Explanation: Higher purchasing prices are attracted to companies with a lot of goodwill. If the goodwill value is written down after the acquisition, it could mean the takeover isn’t going as intended.
Q:4.
On an annuity basis, goodwill is computed by
- A. The discounted value of predicted future benefits is added together.
- B. Expected rate of return divided by super profit.
- C. multiplying the number of years purchased by the average profit.
- D. The number of years bought multiplied by the super-profits.
Explanation: Goodwill is computed by calculating average super profit as the value of an annuity over a period of time. Discounting at the provided rate of interest yields the present value of this annuity.
Q:5.
Goodwill is determined on a capitalization based on
- A. by multiplying the number of years purchased by the average profit.
- B. The number of years purchased multiplied by the profit margin
- C. The discounted value of predicted future benefits is added together.
- D. Taking the total profit and dividing it by the predicted rate of return
Explanation: One of the ways of valuing goodwill is the capitalization method. The value of goodwill is computed using this technique by subtracting actual capital used from the capitalization value of average profits based on the usual rate of return.
Q:6.
Goodwill is referred to ………….
- A. A fixed asset
- B. Realizable assets
- C. An intangible asset
- D. All of the above
Explanation: Goodwill is an intangible asset associated with the purchase of a company by another company. The percentage of the purchase price that is larger than the total of the net fair value of all assets purchased and liabilities assumed in the transaction is referred to as goodwill.
Q:7.
Goodwill is paid for procuring
- A. Present benefit
- B. Past benefit
- C. Future benefit
- D. None of the above
Explanation: : Goodwill is computed by multiplying previous average profits by the number of years predicted to generate profits. Goodwill is a fee paid in exchange for a future benefit.
Q:8.
The term “super profit” means_______
- A. Extra profit earned
- B. Profit earned in abnormal circumstance
- C. Excess of average profit over normal profit
- D. Average profit earned by similar companies
Explanation: Super profit is the difference between the predicted future profit and the regular profit. It is a way of evaluating a company’s excess earnings. The value of superprofits is multiplied by a specific number, which is the number of years from the purchase.
Q:9.
The term normal profit relates to
- A. Average profit earned
- B. Excess of average profit over super profit
- C. Profit earned in abnormal circumstance
- D. Profit earned by similar companies in the same industry
Explanation: A profit figure that considers both explicit and implicit costs is known as normal profit. It can be considered in terms of monetary gain. Normal profit occurs when the differential between a company’s total revenue and its total explicit and hidden costs equals zero.
Q:10.
While computing the amount of capital to be employed
- A. Tangible trading assets should be taken into consideration
- B. Fictitious assets should be taken into consideration
- C. Unrecorded assets should be avoided from consideration
- D. Assets written off are to be taken at original value as per books.
Explanation: Fixed assets, stocks, trade receivables, and accounts payable are the most significant things to identify on a balance sheet when doing a capital-employed analysis.
