MGT602 Assignment 1 Solution Spring 2023
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Based on
the information provided, the Cash
Flow-Based Valuation Approach would be more suitable
for evaluating the fast-food franchise
business that Ammar is planning
to buy.
Solution:
|
Approach |
Decision |
Logic (areguments) |
|
Asset Based
Valuation Approach |
Not Suitable |
·
Asset-Based Valuation Approach is more appropriate for businesses
that have a significant amount
of tangible assets, such as real
estate or equipment. This approach involves estimating the |
|
|
|
value of the business's assets and subtracting its liabilities
to arrive at a net asset value. ·
In the case of a fast-food franchise, the value of its assets, such
as kitchen equipment and furniture, may not be significant compared to its revenue
and cash flow generating capacity. |
|
Cash Based
Valuation Approach |
Suitable |
·
This is because
the business has a documented history of sales, profits/losses,
and financial information, which are essential inputs for this
approach. ·
The Cash Flow- Based
Valuation Approach involves analyzing the expected
future cash flows of the business and discounting them back
to the present to determine their |
|
|
|
current value. This
approach is appropriate when evaluating a business that generates
steady and predictable cash
flows, such as a well-established fast-food franchise. |
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