Identify the reasons for valuation of a business

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Reference no: EM132832846

Businesses need to be valued for a number of reasons such as their purchase and sale, obtaining a listing, inheritance tax and capital gains tax computations. Generally, valuation difficulties are restricted to unlisted companies because listed companies have a quoted share price. However, even listed companies can present valuation challenges for example when one is trying to predict the effect of a takeover on the share price. Whenever a company is bought what the new owners have a right to depends on the stake they hold: Majority holders: have access to their share of earnings and, because they can opt for a winding up, their share of net assets of the company. Minority holders: have access to the dividends the majority decide to pay and a share of the net assets if the majority decides to wind the company up.

Required:

a) Explain the THREE (3) broad approaches to share valuation.

b) Identify the reasons for valuation of a business as a whole or a parcel of its shares.

Reference no: EM132832846

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