Question

1. Discuss five major groups of common errors in practice when undertaking corporate valuations ( Marks will be awarded on the strength of explanations and relevant examples)

Answer 1

5 major mistakes which are generally done during valuation of the corporate entity are as follows-

A.optimism in the estimation of the overall cash flows related to the company because these analysts provide higher estimation of the overall cash flows associated with the company in the long run

B. Providing higher growth rate than normal and that can lead to serious fluctuations in valuations.

C. Risk factors are not properly accounted for in the valuation and they can lead to to wide variation in the valuation of the company.

D. Discounting of the forward earning based on the wrong capital expenditure and revenue expenditure which are deferred in nature

E. there is an inconsistency with the operating expenses in many of the valuation methods applied by the valuer in order to provide higher estimate.