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BUS 5111 Unit 5 Learning Guide

Learning Guide Unit 5
Term 5
BUS 5111
University of the People
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BUS 5111: Financial ManagementLearning Guide Unit 5
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BUS 5111: Financial ManagementLearning Guide Unit 5
Learning Guide Unit 5
Overview
Unit 5: Methods of Computing Company Valuations
Topics:
Market Capitalization and its Measurement
Accounting Book Value and its Implications
Valuation of Expected Future Earnings
Learning Objectives:
By the end of this Unit, you will be able to:
1. Evaluate market capitalization of a company.
2. Discuss the advantages and disadvantages of market cap and the book value method.
3. Develop the skills for identifying cash, identifying cash outflows, and applying time
value of money methods (NPV) to company valuation methods.
Tasks:
Peer assess Unit 4 Written Assignment
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BUS 5111: Financial ManagementLearning Guide Unit 5
Read the Learning Guide and Reading Assignments
Participate in the Discussion Assignment (post, comment, and rate in the Discussion
Forum)
Complete and submit the Written Assignment
Respond to the Portfolio Activity
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BUS 5111: Financial ManagementLearning Guide Unit 5
Learning Guide Unit 5
Introduction
How might business leaders value business entities?
For business deals that involve merging, selling, or acquiring companies, the participants
should have an estimate of the value of the entity they are selling or buying. This week’s
topic explores some methods on how to estimate the value of a business entity.
Financial managers use market capitalization (also known as market cap), book value,
(valuation of expected) future earnings, and many more methods and measurements to
determine company valuation. Book value(s) represent the accounting and historical values,
while market value(s) represent the current values. The valuation principle states that the
value of an asset is equal to the present value of its expected earnings. This means that the
current values are determined by future expectations.
Common methods utilized in business valuation can be assembled into several generalized
approaches. Although not 100% inclusive, a valuation analyst can and will utilize these
methods in each approach. Some consist as follows:
The Asset-Based Approach consists of the book value method and the adjusted net-
asset method. In addition, the adjusted net-asset method is based on three principles:
replacement cost, liquidation, and going concern.
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BUS 5111: Financial ManagementLearning Guide Unit 5
The Income Approach consists of the capitalization of the earnings/cash flows method
and the discounted earnings/cash-flows method.
The Market Approach consists of the guideline public company method, comparable
private transaction method, dividend-paying capacity method, and the prior sales of
interest in the subject business.
Additional Approaches can include Income/Asset and sanity/rationality checks. The
income/asset approach primarily uses the excess earnings/treasury method and the excess
earnings/reasonable rate method. The sanity/rationality checks include a Justification of the
purchase and the rules of thumb. The excess earnings/treasury method can also be
categorized as a hybrid method because they include in consideration both the net assets and
the earnings capacity of the firm.
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BUS 5111: Financial ManagementLearning Guide Unit 5
Learning Guide Unit 5
Reading Assignment
All course textbooks are accessible through the Syllabus or through the course’s “Textbook”
page. Any additional, non-textbook Reading Assignments will provide text access/location
information below.
1. Heisinger, K., & Hoyle, J. B. (2012). Accounting for managers. Saylor
Foundation. https://resources.saylor.org/wwwresources/archived/site/textbooks/Managerial%
20Accounting.pdf
Chapter 11 – Pages 726-734
Chapter 12 – Pages 798-811
Chapter 13 – Pages 883-941
2. Hill, R. A. (2014). Strategic financial
management. Bookboon.com. https://bookboon.com/premium/api/library/12d7ee13-0f5e-
e011-bd88-22a08ed629e5/download/pdf
Chapter 8 – Pages 101-113
3. Petruska, K. A., & Wakil, G. (2013). Firm valuation, market responses, and accounting
conservatism, Journal of Applied Business Research, 29(3), 793
808. https://clutejournals.com/index.php/JABR/article/view/7781/7845
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Learning Guide Unit 5
Discussion Assignment
In the discussion forum, you are expected to participate often and engage in deep levels of
discourse. Please post your initial response as early as possible and continue to participate
throughout the unit. You are required to post an initial response to the question/issue
presented in the Forum and then respond to at least 3 of your classmates’ initial posts. You
should also respond to anyone who has responded to you.
Your Discussion should be a minimum of 250 words in length and not more than 450 words.
Please include a word count. Following the APA standard, use references and in-text citations
for the textbook and any other sources.
For this week’s Discussion:
Briefly explain business valuation and its purpose (also referred to as company
valuation). Select a valuation method from the introduction in the Learning Guide
and describe why you might use that method to value a business.
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Learning Guide Unit 5
Written Assignment
Submit a written paper which is 3-4 pages in length, exclusive of the reference page. the
Abstract is not required or needed. Papers should be double spaced in Times New Roman
font which is no greater than 12 points in size. The paper should cite at least one source
independent of the textbook.
In this paper, please discuss the major methods of company valuation that we have studied. In
doing so, explain each method and compare their advantages and disadvantages with the
other methods you choose to discuss. Support your discussion with references.
Papers will be assessed on the following criteria:
Explain the market capitalization.
Explain the book value.
Explain (expected) future earnings.
Provide narrative on other methods (minimum of two).
Compare market capitalization, book value, and future earnings methods (and your
other chosen methods) with each other to include their advantages and disadvantages.
This assignment will be assessed using the BUS 5111 Unit 5 Written Assignment rubric.
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Learning Guide Unit 5
Portfolio Activity
The Portfolio entry should be a minimum of 250 words and not more than 750 words. Use
APA citations and references if you use ideas from the readings or other sources. For this
week’s portfolio activity, please advise the instructor of the following:
Utilizing the information provided in your course textbook(s) or other valid sources,
briefly explain why company valuation is influenced by capital structure decisions.
Please provide a brief update to the instructor on how you feel you are doing so far
this term.
This activity will be assessed using the Portfolio rubric
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Learning Guide Unit 5
Checklist
Peer assess Unit 4 Written Assignment
Read the Learning Guide and Reading Assignments
Participate in the Discussion Assignment (post, comment, and rate in the Discussion
Forum)
Complete and submit the Written Assignment
Respond to the Portfolio Activity