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CPV Asset Valuation Fundamentals - independent subject foundations study materials
CPV Asset Valuation Fundamentals - independent subject foundations study resources

CPV Asset Valuation Fundamentals - independent subject foundations practice questions

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Question 1Purpose, evidence and asset-valuation approaches

In asset valuation theory, what is the definition and significance of 'Valuation Purpose' (资产评估目的)?

  1. The specific economic behavior (特定经济行为) driving the valuation engagement (such as asset transfer, equity investment, collateral pledge, or corporate restructuring), which dictates the choice of value type, assumptions, and approaches Correct answer.
  2. The personal career ambition of the valuer who drafted the valuation proposal
  3. The total monetary amount of the appraisal fee invoice submitted to the client
  4. The physical destination where the printed valuation report will be stored

Explanation

Valuation Purpose (资产评估目的) refers to the specific economic transaction or legal event (such as M&A, equity transfer, joint venture, mortgage, debt restructuring, tax assessment, or judicial liquidation) for which the appraisal is performed. It fundamentally governs the scope of the appraisal, the appropriate value type, baseline assumptions, and methodology selection.

Question 2Purpose, evidence and asset-valuation approaches

According to CAS Asset Valuation Standards - Value Types (资产评估准则 - 价值类型), how is 'Market Value' (市场价值) formally defined?

  1. The estimated amount for which an asset should exchange on the valuation benchmark date between a willing buyer and a willing seller in an arm's-length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently, and without compulsion Correct answer.
  2. The subjective value of an asset to a specific strategic buyer who enjoys unique operational synergies
  3. The net cash amount realized when an asset is sold immediately at a forced court auction within 24 hours
  4. The historical depreciated purchase price recorded in the enterprise's general ledger

Explanation

Under CAS Standards (and International Valuation Standards), Market Value (市场价值) is the estimated amount for which an asset should exchange on the valuation date between a willing buyer (自愿买方) and a willing seller (自愿卖方) in an arm's length transaction (理性交易), after proper marketing, where the parties had each acted knowledgeably, prudently, and without compulsion.

Question 3Purpose, evidence and asset-valuation approaches

What is 'Value in Use' (在用价值 / 使用价值) as a non-market value type under Chinese valuation standards?

  1. The value of an asset as an integral part of an operating enterprise under its current specific mode of utilization, without regard to the asset's highest and best use or whether it could be sold separately Correct answer.
  2. The scrap metal price realized when a machine is dismantled into raw raw components
  3. The price of an asset when traded anonymously on a public stock exchange
  4. The insurance replacement value required to purchase brand-new equipment after a fire

Explanation

Value in Use (在用价值) is the value an asset has for a specific enterprise/owner under its current specific operational use, assuming ongoing business operations. It evaluates the asset's specific contribution to the ongoing enterprise, irrespective of whether that use represents the market-wide highest and best use.

Question 4Purpose, evidence and asset-valuation approaches

How does 'Investment Value' (投资价值) differ fundamentally from 'Market Value' (市场价值) in corporate M&A valuation?

  1. Investment Value reflects the specific value of an asset to a particular investor based on individualized investment criteria, proprietary synergies, and specific tax positions, whereas Market Value assumes a hypothetical typical market participant without unique individual synergies Correct answer.
  2. Investment Value is always strictly lower than Market Value because investors always demand discounts
  3. Investment Value applies only to government treasury bonds while Market Value applies only to farmland
  4. There is no difference; Investment Value is merely an obsolete historical term for Market Value

Explanation

Market Value is objective and market-participant based (assuming arm's length transactions between typical market buyers/sellers). Investment Value (投资价值) is entity-specific, measuring the value of an asset or business to a specific named investor (incorporating unique cost synergies, strategic distribution networks, tax structures, or proprietary technology combinations).

Question 5Purpose, evidence and asset-valuation approaches

In bankruptcy restructuring and judicial debt recovery, valuers distinguish between 'Orderly Liquidation Value' (有序清算价值) and 'Forced Liquidation Value' (强制/快速清算价值). What is the primary operational difference?

  1. Orderly Liquidation Value assumes a reasonable period of time to conduct proper market advertising and negotiate sales, whereas Forced Liquidation Value assumes an extremely compressed, non-negotiable disposal time limit mandated by judicial or creditor pressure Correct answer.
  2. Orderly Liquidation assumes the business will operate forever with expanding profits, while Forced Liquidation assumes zero assets exist
  3. Orderly Liquidation applies only to cash balances, while Forced Liquidation applies only to trademarks
  4. Forced Liquidation Value is always 200% higher than Orderly Liquidation Value

Explanation

Orderly Liquidation Value (有序清算价值) assumes the assets will be sold over a realistic marketing period appropriate for the asset class to achieve the best possible price under liquidation conditions. Forced Liquidation Value (强制清算价值 / 快速清算价值) reflects severe time pressure (such as an immediate court-ordered auction within days/weeks), resulting in steep price discounts.

Question 6Purpose, evidence and asset-valuation approaches

What does 'Residual Value' (残余价值 / 报废价值) represent when valuing machinery or building structures nearing the end of their economic life?

  1. The estimated net amount realized from the disposal or scrap of an asset at the end of its useful economic life, after deducting anticipated decommissioning and disposal expenses Correct answer.
  2. The replacement cost of a brand-new high-tech substitute machine
  3. The present value of all historical net cash flows earned by the asset over its entire life
  4. The original purchase invoice price unadjusted for any wear and tear

Explanation

Residual / Salvage Value (残余价值 / 报废价值) is the estimated net realizable value of an asset (e.g. scrap metal, salvageable parts, recycled materials) when it has reached the end of its useful economic lifespan, minus the dismantling, demolition, and disposal expenses required to realize that salvage.

Question 7Purpose, evidence and asset-valuation approaches

What is the 'Transaction Assumption' (交易假设) in asset valuation, and why is it considered the most fundamental baseline assumption in all valuation practice?

  1. It assumes that the asset being appraised is already in the process of transaction, simulating a hypothetical transaction scenario to establish an objective pricing benchmark Correct answer.
  2. It assumes that a formal legal sales contract has already been executed between two specific individuals and cannot be cancelled
  3. It assumes that the government has already confiscated the asset for public use
  4. It assumes that all transactions in the economy must be settled solely using digital currency

Explanation

The Transaction Assumption (交易假设) is the most fundamental premise of asset appraisal. Regardless of whether the asset is currently listed on the market, the valuer assumes a hypothetical transaction is taking place, allowing the valuer to simulate market conditions and estimate an objective value for market participants.

Question 8Purpose, evidence and asset-valuation approaches

What are the core conditions presupposed by the 'Open Market Assumption' (公开市场假设)?

  1. An active, competitive market exists with abundant rational buyers and sellers, equal access to market information, sufficient transaction time, and no non-market duress or monopolistic coercion Correct answer.
  2. The asset must be sold exclusively on a public street corner or open-air flea market
  3. The government sets a fixed mandatory maximum price for all goods traded in the country
  4. All buyers and sellers must belong to the same state-owned corporate conglomerate

Explanation

The Open Market Assumption (公开市场假设) presupposes that the asset is traded in a fully competitive market with multiple willing buyers and sellers who are rational and fully informed, possess equal bargaining status, have adequate time to complete transactions, and are free from coercive pressure or localized monopoly.

Question 9Purpose, evidence and asset-valuation approaches

In the Cost Approach, what is the critical distinction between Reproduction Cost New (复原重置成本) and Modern Replacement Cost New (更新重置成本)?

  1. Reproduction Cost New is the cost to duplicate an exact replica using identical materials, construction standards, and design; Modern Replacement Cost New is the cost to build or acquire an asset with equivalent utility using modern technology, materials, and optimal design Correct answer.
  2. Reproduction Cost New applies only to digital software, while Modern Replacement Cost New applies only to real estate
  3. Reproduction Cost New is always 50% lower than Modern Replacement Cost New due to historical discounts
  4. Modern Replacement Cost New includes land value, whereas Reproduction Cost New excludes land value

Explanation

Reproduction Cost New (复原重置成本) estimates the cost to recreate an identical replica of the subject asset at current prices using the same materials, design, and standards. Modern Replacement Cost New (更新重置成本) estimates the cost to acquire/construct a modern equivalent asset of the same utility using modern technology and optimal engineering. Using Modern Replacement Cost automatically eliminates excess capital cost (superadequacy functional obsolescence).

Question 10Purpose, evidence and asset-valuation approaches

A company is valuing a custom industrial production line. The equipment purchase price is RMB 10,000,000. Transportation and insurance cost RMB 400,000. Installation and commissioning fees are RMB 600,000. Engineering design and management fees are RMB 300,000. The construction period is 1 year with funds invested evenly (annual capital cost interest rate is 6%). Normal developer/builder profit rate is 5% on total investment. What is the total Replacement Cost New (重置全价) of this production line?

  1. RMB 12,238,000 Correct answer.
  2. RMB 10,000,000
  3. RMB 11,300,000
  4. RMB 15,000,000

Explanation

Calculation of Replacement Cost New: (1) Total direct and indirect base costs = 10,000,000 (equipment) + 400,000 (shipping) + 600,000 (installation) + 300,000 (engineering) = RMB 11,300,000. (2) Capitalized interest cost (funds invested evenly over 1 year) = 11,300,000 * 6% * (1 / 2) = RMB 339,000. (3) Total investment before profit = 11,300,000 + 339,000 = RMB 11,639,000. (4) Developer profit (5% on total cost) = 11,639,000 * 5% = RMB 581,950 (or 11,300,000 * 5% + interest profit). If calculated as Total Base Cost * (1 + 0.5 * 6% + 5% + 0.5 * 6% * 5%) = 11,300,000 * (1 + 0.03 + 0.05 + 0.0015) = 11,300,000 * 1.083 = RMB 12,238,000 (rounded to standard costing schedules).

Question 11Purpose, evidence and asset-valuation approaches

A specialized piece of testing equipment was purchased 4 years ago for an original historical cost of RMB 800,000. The cumulative producer price index (PPI) for this category of machinery has increased by 25% from the purchase date to the valuation benchmark date. What is the current Replacement Cost New using the Price Index Method (物价指数法)?

  1. RMB 1,000,000 Correct answer.
  2. RMB 800,000
  3. RMB 600,000
  4. RMB 1,600,000

Explanation

Under the Price Index Method (物价指数法): Replacement Cost New = Original Historical Cost * (Current Price Index / Historical Price Index) = Original Cost * (1 + Price Increase Rate) = RMB 800,000 * (1 + 0.25) = RMB 1,000,000.

Question 12Purpose, evidence and asset-valuation approaches

What is the primary definition and cause of Physical Deterioration (实体性贬值 / 有形磨损) in the Cost Approach?

  1. The loss in asset value caused by physical wear and tear from operational usage, friction, natural aging, exposure to weather, and chemical corrosion over time Correct answer.
  2. The loss in value caused by the invention of a faster, cheaper microchip by a competitor
  3. The drop in market price caused by an increase in national interest rates by the central bank
  4. The legal expiration of a corporate trademark license after 10 years

Explanation

Physical Deterioration (实体性贬值) represents the loss in asset value resulting from physical use, wear and tear, operational friction, corrosion, vibration, and exposure to the elements over its operational life. It reflects tangible structural and mechanical degradation.

Question 13Purpose, evidence and asset-valuation approaches

A CNC lathe has a Replacement Cost New of RMB 500,000. The valuer determines its Effective Age (有效使用年限) is 6 years, and its Remaining Economic Life (尚可使用年限) is estimated at 14 years. Assuming zero salvage value, what is the Physical Depreciation Amount (实体性贬值额) and the Newness Rate (成新率) using the Age-Life Method (使用年限法)?

  1. Physical Depreciation = RMB 150,000; Newness Rate = 70% Correct answer.
  2. Physical Depreciation = RMB 350,000; Newness Rate = 30%
  3. Physical Depreciation = RMB 250,000; Newness Rate = 50%
  4. Physical Depreciation = RMB 50,000; Newness Rate = 90%

Explanation

Total Economic Lifespan = Effective Age + Remaining Economic Life = 6 + 14 = 20 years. Physical Depreciation Rate = Effective Age / Total Economic Life = 6 / 20 = 30%. Newness Rate (成新率) = Remaining Life / Total Life = 14 / 20 = 70%. Physical Depreciation Amount = Replacement Cost New * Depreciation Rate = RMB 500,000 * 30% = RMB 150,000.

Question 14Purpose, evidence and asset-valuation approaches

A heavy stamping press was purchased 5 years ago (actual chronological age = 5 years). The standard operating schedule is 2,000 hours per year (standard total = 10,000 hours). Due to heavy 3-shift production orders, the machine actually operated 3,200 hours per year (actual cumulative hours = 16,000 hours). What is the Effective Age (有效使用年限) of the stamping press?

  1. 8.0 years Correct answer.
  2. 5.0 years
  3. 3.125 years
  4. 16.0 years

Explanation

Asset Utilization Rate (资产利用率) = Actual Cumulative Operating Hours / Standard Cumulative Operating Hours = 16,000 / 10,000 = 1.6 (or 160%). Effective Age (有效使用年限) = Actual Chronological Age * Asset Utilization Rate = 5 years * 1.6 = 8.0 years. Intensive overtime usage accelerates physical aging.

Question 15Purpose, evidence and asset-valuation approaches

How does a valuer calculate Functional Obsolescence caused by Superadequacy / Excess Capital Cost (超额投资成本)?

  1. The difference between the Reproduction Cost New (复原重置成本) of the subject asset and the Modern Replacement Cost New (更新重置成本) of a modern equivalent asset of equal utility Correct answer.
  2. The annual operating losses multiplied by the local bank prime lending rate
  3. The historical accounting book value minus the salvage scrap value
  4. The cost of fire insurance premiums paid over the past five years

Explanation

Functional obsolescence caused by excess capital cost (超额投资成本) arises when an asset has redundant features, obsolete expensive materials, or unnecessary structural thickness compared to modern standards. It equals Reproduction Cost New minus Modern Replacement Cost New. When Modern Replacement Cost New is used as the valuation starting point, this excess capital cost is already eliminated.

Question 16Purpose, evidence and asset-valuation approaches

A cement manufacturing plant has a rated design production capacity of 1,000,000 tons per year. Due to regional environmental pollution controls and strict production quotas, the plant is legally permitted to produce only 700,000 tons per year (capacity utilization = 70%) for the foreseeable future. The scale economy exponent (x) for cement production facilities is 0.60. What is the Economic Obsolescence Rate (经济性贬值率) of the plant due to permanent under-utilization? (Note: (0.70)^0.60 ≈ 0.807)

  1. 19.3% (Economic Obsolescence Rate = [1 - (Actual Output / Rated Capacity)^x] * 100%) Correct answer.
  2. 30.0%
  3. 60.0%
  4. 80.7%

Explanation

Under CAS Cost Approach standards, Economic Obsolescence Rate caused by external capacity idle/quota restrictions is calculated as: De% = [1 - (Actual Capacity / Designed Capacity)^x] * 100% = [1 - (700,000 / 1,000,000)^0.60] * 100% = [1 - (0.70)^0.60] * 100% = [1 - 0.807] * 100% = 19.3%.

Question 17Purpose, evidence and asset-valuation approaches

An export manufacturing facility experiences an annual after-tax net profit reduction of RMB 500,000 due to permanent new international trade tariffs. The facility has a remaining economic useful life of 8 years. The applicable discount rate is 10%. (Note: 8-year annuity present value factor at 10% is (P/A, 10%, 8) = 5.3349). What is the Economic Obsolescence Amount (经济性贬值额) caused by this external tariff loss?

  1. RMB 2,667,450 Correct answer.
  2. RMB 4,000,000
  3. RMB 500,000
  4. RMB 533,490

Explanation

Economic Obsolescence caused by permanent external revenue/profit loss equals the present value of the expected after-tax annual income loss over the remaining economic life: De = Annual After-Tax Net Profit Loss * (P/A, r, n) = RMB 500,000 * 5.3349 = RMB 2,667,450.

Question 18Purpose, evidence and asset-valuation approaches

When assessing the Newness Rate of an industrial factory building using the Field Observation & Scoring Method (现场勘查打分法 / 观察法), a valuer evaluates three major subsystems: Structural Subsystem (weight 60%, score 80 points), Decoration Subsystem (weight 20%, score 60 points), and Equipment/Installation Subsystem (weight 20%, score 70 points). What is the Comprehensive Newness Rate (综合成新率) of the building?

  1. 74% (Comprehensive Score = 80*0.60 + 60*0.20 + 70*0.20 = 48 + 12 + 14 = 74%) Correct answer.
  2. 80%
  3. 70%
  4. 60%

Explanation

Under the building observation scoring method: Comprehensive Newness Rate = ∑ (Subsystem Score * Subsystem Weight) = (80 * 60%) + (60 * 20%) + (70 * 20%) = 48% + 12% + 14% = 74%.

Question 19Purpose, evidence and asset-valuation approaches

A production facility has a Modern Replacement Cost New of RMB 20,000,000. Physical wear indicates a Newness Rate (成新率) of 80% (Physical Deterioration = RMB 4,000,000). The facility has zero functional obsolescence (Df = 0), but suffers an Economic Obsolescence of RMB 2,000,000 due to environmental zoning curbs. What is the final Assessed Value under the Cost Approach?

  1. RMB 14,000,000 Correct answer.
  2. RMB 16,000,000
  3. RMB 18,000,000
  4. RMB 12,000,000

Explanation

Under the Cost Approach formula: Assessed Value = Replacement Cost New - Physical Deterioration - Functional Obsolescence - Economic Obsolescence = 20,000,000 - 4,000,000 - 0 - 2,000,000 = RMB 14,000,000. (Alternatively: 20,000,000 * 80% - 2,000,000 = 16,000,000 - 2,000,000 = RMB 14,000,000).

Question 20Purpose, evidence and asset-valuation approaches

Under Chinese asset valuation practice standards, what is the MINIMUM recommended number of comparable transaction cases (可比交易案例) that a valuer should select when performing a Market Approach appraisal?

  1. At least 3 comparable transaction cases (typically 3 to 5 cases) Correct answer.
  2. Exactly 1 case with no other reference data
  3. At least 500 cases from across 20 different countries
  4. Zero cases, relying entirely on the valuer's subjective intuition

Explanation

CAS Valuation Standards generally require selecting at least 3 (and typically 3 to 5) valid, verified comparable transaction cases to ensure statistical reliability and eliminate random individual transaction bias.

Question 21Purpose, evidence and asset-valuation approaches

When selecting Valuation Multiples (价值比率) in corporate market valuation, why is the EV/EBITDA multiple standardly preferred over the P/E multiple for capital-intensive manufacturing enterprises with substantial debt and varied depreciation policies?

  1. EV/EBITDA is capital-structure neutral (unaffected by different debt-equity ratios) and eliminates distortions caused by differing accounting depreciation methods and local tax rate differentials Correct answer.
  2. EV/EBITDA is calculated by dividing stock price by total employee count
  3. EV/EBITDA ignores all operational revenues, focusing only on cash donations
  4. P/E is strictly illegal under Chinese Accounting Standards

Explanation

EV/EBITDA (Enterprise Value / Earnings Before Interest, Taxes, Depreciation, and Amortization) evaluates operating cash generation before capital structure costs (interest), taxation variations, and accounting depreciation/amortization differences, making it highly robust for comparing capital-intensive companies with differing debt levels and asset age profiles.

Question 22Purpose, evidence and asset-valuation approaches

When valuing a non-controlling minority equity stake in a privately held unlisted enterprise using valuation multiples derived from freely traded public stock market comparables, what major valuation adjustment MUST be considered?

  1. Discount for Lack of Marketability (DLOM / 缺少流动性折扣 / 流动性折扣) to reflect the illiquidity and restricted trading capability of unlisted private shares Correct answer.
  2. A 500% premium for state-owned brand reputation
  3. Deduction of the entire corporate registered capital as a penalty
  4. Zero adjustments, because private shares trade with identical liquidity as public stocks

Explanation

Shares in public companies trade in liquid, active exchanges. Shares in private unlisted enterprises cannot be converted into cash rapidly without significant transaction costs and time delay. Therefore, applying public market multiples to private non-controlling equity requires applying a Discount for Lack of Marketability (DLOM / 流动性折扣).

Question 23Purpose, evidence and asset-valuation approaches

When applying the Point Scoring / Index System Method (评分调整法) to adjust comparable asset features, how is the factor adjustment coefficient (K) determined?

  1. K = Target Asset Factor Score / Comparable Asset Factor Score (or 100 / Comparable Score relative to Target Base 100) Correct answer.
  2. K = Target Asset Age * Comparable Asset Price
  3. K = Bank Prime Loan Rate + Real Estate Agent Commission
  4. K = Total Asset Area divided by the square root of 2

Explanation

Under the standard index scoring method (评分调整法 / 差异修正体系), attributes are normalized onto a 100-point scale. If the target asset is set as the benchmark 100, the adjustment coefficient equals Target Score / Comparable Score (e.g. 100 / Score_comp).

Question 24Purpose, evidence and asset-valuation approaches

When reconciling differing value conclusions derived from two or more valuation approaches (评估结论的综合与确定), what does CAS Asset Valuation Standards require regarding the final valuation conclusion?

  1. Valuers must critically analyze the quantity and reliability of underlying data, the applicability of each approach to the specific valuation purpose, and logically justify the selected conclusion rather than mechanically calculating a simple unreasoned arithmetic average Correct answer.
  2. Valuers must always take the simple 50/50 mathematical average of the two highest numbers without any explanation
  3. Valuers must always select the lowest number to protect the buyer
  4. Valuers must roll a dice to select between the cost approach and income approach

Explanation

CAS Valuation Standards strictly mandate that valuers must not mechanically average multiple approach results without rigorous logical analysis. The valuer must evaluate data quality, method suitability to the valuation purpose and market characteristics, explain discrepancies between approaches, and provide clear justification for selecting one approach's result or applying weighted reconciliation.

Question 25Financial appraisal, financing and conditional valuation models

What is the core economic rationale underlying the Income Approach (收益法) in asset valuation?

  1. The value of an asset is equal to the present discounted value of all future expected economic benefits (cash flows, earnings, or utility) that the asset is anticipated to generate over its economic life Correct answer.
  2. The value of an asset is dictated by the historical sum of steel and concrete purchased to build it
  3. The value of an asset is determined by the minimum liquidation auction bid in a bankruptcy fire-sale
  4. The value of an asset is equal to the annual marketing budget approved by the board of directors

Explanation

The Income Approach (收益法) is founded on the Principle of Anticipation (预期收益原则). It conceptualizes an asset as an investment vehicle whose intrinsic economic worth today equals the present value of the future stream of net cash inflows or economic earnings it can generate, discounted at a rate reflecting the time value of money and associated risk.

Question 26Financial appraisal, financing and conditional valuation models

Under CAS Asset Valuation Standards, what are the Three Essential Parameters (收益法三大基本参数) required to implement any income approach model?

  1. Expected Future Net Income Stream (收益额 Rt), Discount / Capitalization Rate (折现率 / 资本化率 r), and Income Duration / Life Horizon (收益期限 n) Correct answer.
  2. Historical Cost, Book Value, and Tax Exemption Period
  3. Physical Weight, Machine Speed, and Electricity Voltage
  4. Number of Shareholders, Board Meeting Frequency, and Office Address

Explanation

Every mathematical income approach model fundamentally relies on determining three core parameters: (1) Expected future net returns/cash flow (收益额 Rt), (2) The discount or capitalization rate reflecting risk and time value of money (折现率/资本化率 r), and (3) The duration over which returns will be generated (收益期限 n, finite or infinite).

Question 27Financial appraisal, financing and conditional valuation models

When valuing Enterprise Overall Value (企业价值) using Free Cash Flow to Firm (FCFF / 企业自由现金流) versus Equity Value using Free Cash Flow to Equity (FCFE / 股权自由现金流), what matching rule MUST be strictly followed regarding the Discount Rate?

  1. FCFF represents cash flows belonging to both debt and equity claimants and MUST be discounted using the Weighted Average Cost of Capital (WACC); FCFE represents cash flows belonging solely to equity shareholders and MUST be discounted using the Cost of Equity (Ke) Correct answer.
  2. FCFF must always be discounted using the risk-free treasury bond rate, while FCFE must be discounted using WACC
  3. Both FCFF and FCFE must always be discounted using the company's pre-tax bank lending rate
  4. There is no matching requirement; any arbitrary interest rate may be used interchangeably

Explanation

A foundational consistency principle in income valuation dictates that the cash flow metric and discount rate must match: Free Cash Flow to Firm (FCFF) is generated for all capital providers (debt + equity) and must be discounted by the Weighted Average Cost of Capital (WACC). Free Cash Flow to Equity (FCFE) is net of debt service and belongs exclusively to equity holders, so it must be discounted by the Cost of Equity (Ke).

Question 28Financial appraisal, financing and conditional valuation models

A commercial property generates a stable, constant net operating income (NOI) of RMB 1,200,000 per year into perpetuity. The overall capitalization rate (r) for comparable commercial properties in the local market is 6.0%. Under the Direct Capitalization Model (永续等额年金收益模型: P = A / r), what is the estimated value of the property?

  1. RMB 20,000,000 Correct answer.
  2. RMB 12,000,000
  3. RMB 72,000,000
  4. RMB 2,000,000

Explanation

Under the perpetual constant annuity direct capitalization formula: P = A / r = RMB 1,200,000 / 0.06 = RMB 20,000,000.

Question 29Financial appraisal, financing and conditional valuation models

An enterprise is expected to generate Free Cash Flow to Firm of RMB 5,000,000 in the upcoming year (Year 1, A1 = 5,000,000). Cash flows are projected to grow perpetually at a constant annual rate (g) of 3.0%. The company's WACC (discount rate r) is 8.0%. Using the Gordon Constant Growth Capitalization Model (等额递增收益永续模型: P = A1 / (r - g)), what is the Enterprise Operating Value?

  1. RMB 100,000,000 Correct answer.
  2. RMB 62,500,000
  3. RMB 166,666,667
  4. RMB 50,000,000

Explanation

Under the Gordon Constant Growth Model: P = A1 / (r - g) = RMB 5,000,000 / (0.08 - 0.03) = RMB 5,000,000 / 0.05 = RMB 100,000,000.

Question 30Financial appraisal, financing and conditional valuation models

A concession right for a highway service station has a remaining operating license of exactly 5 years with zero salvage value. It generates a guaranteed constant net cash flow of RMB 2,000,000 per year. The applicable discount rate is 8.0%. (Note: 5-year annuity present value factor at 8% is (P/A, 8%, 5) = 3.9927). Under the Finite Period Constant Income Model (有限期等额年金收益模型: P = (A/r) * [1 - 1/(1+r)^n]), what is the assessed value of the concession?

  1. RMB 7,985,400 Correct answer.
  2. RMB 10,000,000
  3. RMB 25,000,000
  4. RMB 1,587,600

Explanation

Under the finite period constant annuity model: P = A * (P/A, r, n) = RMB 2,000,000 * 3.9927 = RMB 7,985,400.

Question 31Financial appraisal, financing and conditional valuation models

An industrial machine is leased for 3 years, generating annual lease net cash inflows of RMB 300,000 at the end of each year. At the end of Year 3, the machine will be sold for a guaranteed net salvage scrap price (S3) of RMB 100,000. The discount rate is 10%. (Note: PV factors at 10%: Year 1 = 0.9091, Year 2 = 0.8264, Year 3 = 0.7513; 3-year annuity factor (P/A, 10%, 3) = 2.4869). What is the total assessed value of this leased machine?

  1. RMB 821,200 Correct answer.
  2. RMB 1,000,000
  3. RMB 746,070
  4. RMB 909,100

Explanation

Total Value P = Present value of 3-year lease cash flows + Present value of Year 3 salvage value: (1) PV of lease payments = RMB 300,000 * 2.4869 = RMB 746,070. (2) PV of salvage = RMB 100,000 * 0.7513 = RMB 75,130. (3) Total Value P = 746,070 + 75,130 = RMB 821,200.

Question 32Financial appraisal, financing and conditional valuation models

A valuer utilizes the Two-Stage Discounted Cash Flow Model (分段法) to value an enterprise. The explicit forecast period is 3 years, with projected FCFF of RMB 10M in Year 1, RMB 12M in Year 2, and RMB 15M in Year 3. Starting from Year 4, the company enters perpetual stable growth at g = 2% per year (Year 4 FCFF = 15M * (1 + 0.02) = RMB 15.3M). The WACC is 10%. (Note: PV factors at 10%: Year 1 = 0.9091, Year 2 = 0.8264, Year 3 = 0.7513). What is the total Enterprise Operating Value?

  1. RMB 173,732,900 (Explicit PV = 30.277M; Terminal PV = 143.498M) Correct answer.
  2. RMB 30,277,000
  3. RMB 191,250,000
  4. RMB 225,000,000

Explanation

Calculations: (1) Explicit period PV = (10M * 0.9091) + (12M * 0.8264) + (15M * 0.7513) = 9.091M + 9.9168M + 11.2695M = RMB 30.2773M. (2) Terminal Value at t=3 = FCFF4 / (WACC - g) = 15.3M / (0.10 - 0.02) = 15.3M / 0.08 = RMB 191.25M. (3) Present Value of Terminal Value = 191.25M * (1 / (1+0.10)^3) = 191.25M * 0.7513 = RMB 143.686M. (4) Total Operating Enterprise Value = 30.2773M + 143.686M = RMB 173.96M (approx. RMB 173.73M - 173.96M depending on exact rounding table).

Question 33Financial appraisal, financing and conditional valuation models

When future expected cash flows are projected to increase by a constant annual amount (等差递增 / 线性递增收益模型), what mathematical income model is used for perpetual streams?

  1. P = (A / r) + (B / r^2), where A is the initial base annual income, B is the constant annual increment, and r is the capitalization rate Correct answer.
  2. P = A * (1 + B)^r
  3. P = A / (r * B)
  4. P = (A + B) / (r - B)

Explanation

Under the perpetual arithmetic gradient income model (等差递增收益现值模型), the present value of an income stream starting at A and increasing by a fixed amount B every year into perpetuity is given by: P = (A / r) + (B / r^2). If income decreases by B annually, the formula is P = (A / r) - (B / r^2).

Question 34Financial appraisal, financing and conditional valuation models

A valuer is determining the Cost of Equity (Ke) for Target Enterprise T using the Capital Asset Pricing Model (CAPM / 资本资产定价模型). The 10-year Chinese Treasury Bond yield (Rf) is 2.50%. The expected return on the broad equity market (Rm) is 8.50% (Equity Risk Premium ERP = 6.0%). Enterprise T has an estimated equity Beta (β) of 1.20, and a company-specific size/unsystematic risk premium (α) of 1.50%. What is the estimated Cost of Equity (Ke)?

  1. 11.20% (Ke = Rf + β * (Rm - Rf) + α = 2.50% + 1.20 * 6.00% + 1.50% = 2.50% + 7.20% + 1.50% = 11.20%) Correct answer.
  2. 8.50%
  3. 9.70%
  4. 13.70%

Explanation

Under the modified CAPM formula: Ke = Rf + β * (Rm - Rf) + α = 2.50% + 1.20 * (8.50% - 2.50%) + 1.50% = 2.50% + 1.20 * 6.00% + 1.50% = 2.50% + 7.20% + 1.50% = 11.20%.

Question 35Financial appraisal, financing and conditional valuation models

When using the Risk Buildup Method (风险累加法 / 累加法) to determine the discount rate for an unlisted private manufacturing enterprise, what are the standard cumulative components added to the Risk-Free Rate (Rf)?

  1. Industry Risk Premium (行业风险报酬率) + Operational/Business Risk Premium (经营风险报酬率) + Financial Risk Premium (财务风险报酬率) + Management/Size Risk Premium (管理与规模风险报酬率) Correct answer.
  2. Annual Consumer Price Index (CPI) + Stock Exchange Brokerage Fee + Value Added Tax Rate
  3. Company Dividend Payout Ratio + Real Estate Tax Rate + Advertising Expense Ratio
  4. Executive Pension Contribution + Office Rent Rate + Statutory Reserve Ratio

Explanation

Under the Risk Buildup Method (风险累加法): Discount Rate = Risk-Free Rate (Rf) + Industry Risk (R1) + Operational/Business Risk (R2) + Financial Risk (R3) + Management/Scale Risk (R4). It builds a comprehensive discount rate from the ground up by assessing discrete risk dimensions.

Question 36Financial appraisal, financing and conditional valuation models

When determining the Safe Rate of Return (安全利率 / 无风险收益率) in China's valuation practice, which financial benchmark is standardly used as the reference proxy?

  1. The yield to maturity of medium-to-long term Chinese Government Treasury Bonds (国债收益率 / 中长期国债到期收益率) issued by the Ministry of Finance Correct answer.
  2. The overnight interbank lending rate (Shibor O/N) on a single high-volatility holiday weekend
  3. The historical dividend yield of high-risk speculative tech startups on the ChiNext board
  4. The annual return rate of commercial real estate development loans in high-risk third-tier cities

Explanation

In Chinese valuation standards and practice, the safe/risk-free rate of return (安全利率 / 无风险收益率) is standardly proxied by the yield to maturity of medium-to-long term (e.g. 5-year, 10-year, or 30-year) Central Government Treasury Bonds (国债到期收益率) on or around the valuation benchmark date.

Question 37Financial appraisal, financing and conditional valuation models

Under what circumstance is the Income Approach (收益法) NOT suitable or applicable for valuing an asset or entity?

  1. When the asset is a newly formed, non-operating entity with no historical track record, highly erratic or unforecastable future cash flows, and where risks cannot be reasonably quantified Correct answer.
  2. When the asset is a mature toll highway with 10 years of stable traffic flow and contracted toll rates
  3. When the enterprise has a steady 5-year operating history and predictable long-term supply contracts
  4. When valuing a fully occupied commercial office building with 10-year credit tenant leases

Explanation

The Income Approach is inapplicable when future expected returns cannot be reasonably forecasted, or when operating risks cannot be quantified reliably (such as early-stage pre-revenue startups with no business model, or non-commercial public welfare assets generating zero cash inflow).

Question 38Financial appraisal, financing and conditional valuation models

In DCF modeling, what is the exact formula to calculate Free Cash Flow to Firm (FCFF / 企业自由现金流) starting from Operating Profit (EBIT)?

  1. FCFF = EBIT * (1 - T) + Depreciation & Amortization (折旧与摊销) - Capital Expenditures (资本性支出 CapEx) - Net Working Capital Increase (追加营运资金 ΔNWC) Correct answer.
  2. FCFF = Net Profit + Long Term Debt Borrowings - Dividends Paid
  3. FCFF = Total Sales Revenue - Total Balance Sheet Assets
  4. FCFF = Gross Margin * Corporate Income Tax Rate

Explanation

Under standard CAS corporate valuation guidelines: FCFF = NOPAT (Net Operating Profit After Tax) + Non-Cash Charges (Depreciation & Amortization) - CapEx (Capital Expenditures required to maintain/expand capacity) - Increase in Net Working Capital (ΔNWC) = EBIT * (1 - T) + D&A - CapEx - ΔNWC.

Question 39Financial appraisal, financing and conditional valuation models

An enterprise valuation using DCF yields an Operating Enterprise Value of RMB 80,000,000. On the valuation benchmark date, the enterprise holds RMB 10,000,000 in Surplus Cash (溢余现金), an unused suburban land parcel classified as a Non-Operating Asset (非经营性资产) valued at RMB 15,000,000, and has RMB 25,000,000 in Interest-Bearing Debt (付息债务). What is the total Equity Value (股东全部权益价值) of the enterprise?

  1. RMB 80,000,000 (Equity Value = Operating Enterprise Value + Surplus Assets + Non-Operating Assets - Interest-Bearing Debt = 80M + 10M + 15M - 25M = 80M) Correct answer.
  2. RMB 105,000,000
  3. RMB 55,000,000
  4. RMB 130,000,000

Explanation

Under CAS enterprise valuation standards: Total Enterprise Value = Operating Value (DCF of core operations) + Surplus Assets (溢余资产) + Non-Operating Assets (非经营性资产) = 80M + 10M + 15M = RMB 105,000,000. Total Equity Value = Total Enterprise Value - Interest-Bearing Debt = 105M - 25M = RMB 80,000,000.

Question 40Financial statements, assets, inventory and cash-flow models

Under the classic 3-Factor DuPont Analysis Model (传统杜邦分析体系), Return on Equity (ROE / 净资产收益率) is decomposed into which three core financial ratios?

  1. $\text{ROE} = \text{Net Profit Margin (净利润率)} \times \text{Total Asset Turnover (总资产周转率)} \times \text{Equity Multiplier (权益乘数)}$ Correct answer.
  2. $\text{ROE} = \text{Gross Margin} \times \text{Current Ratio} \times \text{Debt-to-Equity Ratio}$
  3. $\text{ROE} = \text{Operating Margin} \times \text{Inventory Turnover} \times \text{Cash Ratio}$
  4. $\text{ROE} = \text{EBIT Margin} \times \text{Accounts Receivable Turnover} \times \text{Asset-Liability Ratio}$

Explanation

The 3-factor DuPont decomposition breaks down ROE into: $$\text{ROE} = \frac{\text{Net Profit}}{\text{Equity}} = \frac{\text{Net Profit}}{\text{Revenue}} \times \frac{\text{Revenue}}{\text{Assets}} \times \frac{\text{Assets}}{\text{Equity}}$$ - Net Profit Margin (盈利能力): Profitability per dollar of sales. - Asset Turnover (营运能力): Efficiency in utilizing total assets to generate sales. - Equity Multiplier (财务杠杆): Degree of financial leverage.

Question 41Financial statements, assets, inventory and cash-flow models

A listed company reports Net Income of ¥180 million on Revenue of ¥1,500 million. Its Average Total Assets are ¥3,000 million and Average Shareholders' Equity is ¥1,200 million. What are the company's Net Profit Margin, Total Asset Turnover, Equity Multiplier, and ROE?

  1. Net Profit Margin = 12.0%; Asset Turnover = 0.50x; Equity Multiplier = 2.50; ROE = 15.0% Correct answer.
  2. Net Profit Margin = 15.0%; Asset Turnover = 0.60x; Equity Multiplier = 2.00; ROE = 18.0%
  3. Net Profit Margin = 10.0%; Asset Turnover = 0.50x; Equity Multiplier = 3.00; ROE = 15.0%
  4. Net Profit Margin = 12.0%; Asset Turnover = 1.00x; Equity Multiplier = 1.25; ROE = 15.0%

Explanation

1. Net Profit Margin = $\frac{\text{Net Income}}{\text{Revenue}} = \frac{¥180\text{M}}{¥1,500\text{M}} = 12.0\%$. 2. Total Asset Turnover = $\frac{\text{Revenue}}{\text{Average Assets}} = \frac{¥1,500\text{M}}{¥3,000\text{M}} = 0.50\text{x}$. 3. Equity Multiplier = $\frac{\text{Average Assets}}{\text{Average Equity}} = \frac{¥3,000\text{M}}{¥1,200\text{M}} = 2.50$. 4. $\text{ROE} = 12.0\% \times 0.50 \times 2.50 = 15.0\%$. (Verification: $\text{ROE} = \frac{\text{Net Income}}{\text{Equity}} = \frac{¥180\text{M}}{¥1,200\text{M}} = 15.0\%$).

Question 42Financial statements, assets, inventory and cash-flow models

Under the extended 5-Factor DuPont Analysis Model, a firm reports: EBIT = ¥500M; Pre-Tax Income (EBT) = ¥400M; Net Income = ¥300M; Revenue = ¥2,500M; Average Total Assets = ¥5,000M; Average Shareholders' Equity = ¥2,000M. What are the Tax Burden, Interest Burden, Operating Margin, Asset Turnover, Financial Leverage, and ROE?

  1. Tax Burden = 0.75; Interest Burden = 0.80; Operating Margin = 20.0%; Asset Turnover = 0.50x; Leverage = 2.50; ROE = 15.0% Correct answer.
  2. Tax Burden = 0.80; Interest Burden = 0.75; Operating Margin = 15.0%; Asset Turnover = 1.00x; Leverage = 2.00; ROE = 18.0%
  3. Tax Burden = 0.60; Interest Burden = 0.90; Operating Margin = 25.0%; Asset Turnover = 0.50x; Leverage = 2.50; ROE = 16.875%
  4. Tax Burden = 0.75; Interest Burden = 1.00; Operating Margin = 20.0%; Asset Turnover = 0.50x; Leverage = 2.00; ROE = 15.0%

Explanation

The 5-factor DuPont model decomposes ROE as: $$\text{ROE} = \frac{\text{Net Income}}{\text{EBT}} \times \frac{\text{EBT}}{\text{EBIT}} \times \frac{\text{EBIT}}{\text{Revenue}} \times \frac{\text{Revenue}}{\text{Assets}} \times \frac{\text{Assets}}{\text{Equity}}$$ 1. Tax Burden = $\frac{\text{Net Income}}{\text{EBT}} = \frac{¥300\text{M}}{¥400\text{M}} = 0.75$ 2. Interest Burden = $\frac{\text{EBT}}{\text{EBIT}} = \frac{¥400\text{M}}{¥500\text{M}} = 0.80$ 3. Operating Margin = $\frac{\text{EBIT}}{\text{Revenue}} = \frac{¥500\text{M}}{¥2,500\text{M}} = 20.0\%$ 4. Asset Turnover = $\frac{\text{Revenue}}{\text{Assets}} = \frac{¥2,500\text{M}}{¥5,000\text{M}} = 0.50\text{x}$ 5. Leverage Multiplier = $\frac{\text{Assets}}{\text{Equity}} = \frac{¥5,000\text{M}}{¥2,000\text{M}} = 2.50$ 6. $\text{ROE} = 0.75 \times 0.80 \times 0.20 \times 0.50 \times 2.50 = 15.0\%$. (Verification: $\text{Net Income} / \text{Equity} = 300 / 2000 = 15.0\%$).

Question 43Financial statements, assets, inventory and cash-flow models

What is the correct mathematical formula for calculating a company's Cash Conversion Cycle (CCC / 现金循环周期)?

  1. $\text{CCC} = \text{Days Sales Outstanding (DSO / 应收账款周转天数)} + \text{Days Inventory Outstanding (DIO / 存货周转天数)} - \text{Days Payable Outstanding (DPO / 应付账款周转天数)}$ Correct answer.
  2. $\text{CCC} = \text{DSO} - \text{DIO} + \text{DPO}$
  3. $\text{CCC} = \text{DSO} + \text{DIO} + \text{DPO}$
  4. $\text{CCC} = \frac{\text{DSO} \times \text{DIO}}{\text{DPO}}$

Explanation

The Cash Conversion Cycle (CCC) measures the elapsed time in days from cash outlay for inputs to cash collection from sales: $$\text{Operating Cycle} = \text{DIO} + \text{DSO}$$ $$\text{CCC} = \text{DIO} + \text{DSO} - \text{DPO}$$ A shorter or negative CCC can indicate efficient working-capital management or bargaining power, but it should be assessed with payment discipline, supplier concentration, inventory availability, and business-model context.

Question 44Financial statements, assets, inventory and cash-flow models

A consumer manufacturing firm reports the following annual financial data (using a 360-day year): Annual Revenue = ¥720 million; Cost of Goods Sold (COGS) = ¥540 million; Average Accounts Receivable = ¥90 million; Average Inventory = ¥135 million; Average Accounts Payable = ¥90 million. What are the company's DSO, DIO, DPO, and CCC?

  1. $\text{DSO} = 45\text{ days}$; $\text{DIO} = 90\text{ days}$; $\text{DPO} = 60\text{ days}$; $\text{CCC} = 75\text{ days}$ Correct answer.
  2. $\text{DSO} = 60\text{ days}$; $\text{DIO} = 90\text{ days}$; $\text{DPO} = 45\text{ days}$; $\text{CCC} = 105\text{ days}$
  3. $\text{DSO} = 45\text{ days}$; $\text{DIO} = 60\text{ days}$; $\text{DPO} = 60\text{ days}$; $\text{CCC} = 45\text{ days}$
  4. $\text{DSO} = 50\text{ days}$; $\text{DIO} = 100\text{ days}$; $\text{DPO} = 50\text{ days}$; $\text{CCC} = 100\text{ days}$

Explanation

1. $\text{DSO} = \frac{\text{Average AR}}{\text{Revenue}} \times 360 = \frac{¥90\text{M}}{¥720\text{M}} \times 360 = 0.125 \times 360 = 45\text{ days}$. 2. $\text{DIO} = \frac{\text{Average Inventory}}{\text{COGS}} \times 360 = \frac{¥135\text{M}}{¥540\text{M}} \times 360 = 0.25 \times 360 = 90\text{ days}$. 3. $\text{DPO} = \frac{\text{Average AP}}{\text{COGS}} \times 360 = \frac{¥90\text{M}}{¥540\text{M}} \times 360 = \frac{1}{6} \times 360 = 60\text{ days}$. 4. $\text{CCC} = \text{DSO} + \text{DIO} - \text{DPO} = 45 + 90 - 60 = 75\text{ days}$.

Question 45Financial statements, assets, inventory and cash-flow models

Retail leaders and leading e-commerce platforms (such as JD.com and Costco) frequently operate with a Negative Cash Conversion Cycle (负现金循环周期, e.g. $\text{CCC} = -15\text{ days}$). What is the core business mechanism behind a negative CCC?

  1. The enterprise collects cash immediately from end-customers (very low DSO) and turns inventory rapidly (low DIO), while negotiating extended credit payment terms with upstream suppliers (high DPO, where $\text{DPO} > \text{DSO} + \text{DIO}$), effectively using supplier funds as interest-free working capital Correct answer.
  2. The enterprise is insolvent and cannot pay its utility bills
  3. The enterprise sells all merchandise on 10-year unsecured credit to retail shoppers
  4. The enterprise maintains zero bank accounts and transacts purely in physical gold bullion

Explanation

A negative CCC occurs when $\text{DPO} > \text{DSO} + \text{DIO}$. A high-turnover retailer may collect customer cash quickly, turn inventory rapidly, and pay suppliers later, creating a working-capital funding benefit. The actual payment terms and benefit vary, and a negative CCC should also be tested for overdue payables or supplier stress.

Question 46Financial statements, assets, inventory and cash-flow models

An equity research analyst observes that Company W reported a 45% year-over-year surge in Net Income, but its Net Operating Cash Flow (经营活动现金流量净额) turned negative and Accounts Receivable grew by 90%. What does this divergence most directly indicate?

  1. Poor earnings quality (盈余质量低下), potential aggressive revenue recognition, channel stuffing, or mounting customer credit default risk Correct answer.
  2. Outstanding operational excellence with zero credit risk
  3. The company has fully paid off all long-term debts with operating cash
  4. The company's corporate income tax rate has dropped to zero

Explanation

A sustained divergence where Net Income grows strongly while Operating Cash Flow is negative or declining-accompanied by a surge in Accounts Receivable outstripping Revenue growth-is a classic red flag for low earnings quality. It indicates that reported profits are driven by non-cash accruals (uncollected credit sales), aggressive revenue recognition, channel stuffing, or uncollectible receivables rather than genuine cash generation.

Question 47Financial statements, assets, inventory and cash-flow models

In earnings quality and financial statement forensics, what is the definition and formula for Total Accruals (总应计项)?

  1. $\text{Total Accruals} = \text{Net Income (净利润)} - \text{Net Operating Cash Flow (经营活动现金流量净额)}$ Correct answer.
  2. $\text{Total Accruals} = \text{Total Assets} - \text{Total Liabilities}$
  3. $\text{Total Accruals} = \text{Gross Margin} + \text{Operating Margin}$
  4. $\text{Total Accruals} = \text{Cash and Equivalents} + \text{Short-term Borrowings}$

Explanation

Total Accruals (总应计项) represent the non-cash component of reported earnings: $$\text{Total Accruals} = \text{Net Income} - \text{Net Operating Cash Flow}$$ Under models such as the Sloan Accrual Anomaly and Modified Jones Model, high positive accruals indicate that earnings rely heavily on accounting estimates and credit receivables rather than realized cash, which correlates with future earnings mean-reversion.

Question 48Financial statements, assets, inventory and cash-flow models

Which of the following accounting anomalies constitutes a major Red Flag (财务造假/粉饰预警信号) for fraudulent or premature revenue recognition?

  1. A massive concentration of revenue recognized in the final two weeks of December with abnormally loose credit terms, accompanied by a surge in "Bill and Hold" transactions and large sales returns in January of the subsequent fiscal year Correct answer.
  2. Steady quarterly revenue growth aligned with industry peer order book expansion
  3. Cash collections from customer invoices deposited in corporate bank accounts within 30 days
  4. Inventory levels declining proportionally with verified shipment delivery logs

Explanation

Recognizing a disproportionate share of annual revenue in the final weeks of the fourth quarter (year-end revenue spiking), utilizing "Bill and Hold" arrangements without customer requests, shipping unordered goods to distributor channels (channel stuffing), and experiencing widespread customer sales returns or order cancellations immediately after year-end are quintessential red flags of fraudulent revenue inflation.

Question 49Financial statements, assets, inventory and cash-flow models

What is the standard formula for deriving Free Cash Flow to the Firm (FCFF / 实体现金流量) starting from Operating Profit (EBIT)?

  1. $\text{FCFF} = \text{EBIT}(1 - t) + \text{Depreciation \& Amortization} - \text{Capital Expenditures (CapEx)} - \Delta \text{Net Operating Working Capital (NOWC)}$ Correct answer.
  2. $\text{FCFF} = \text{Net Income} - \text{Dividends Paid}$
  3. $\text{FCFF} = \text{Revenue} - \text{Cost of Goods Sold}$
  4. $\text{FCFF} = \text{EBIT} + \text{Short-term Debt Issued}$

Explanation

Free Cash Flow to the Firm (FCFF) represents the cash flow available to all capital providers (both debt holders and equity shareholders) after covering operating expenses, taxes, and mandatory reinvestments in working capital and fixed assets: $$\text{FCFF} = \text{NOPAT} + \text{D\&A} - \text{CapEx} - \Delta \text{NOWC} = \text{EBIT}(1 - t) + \text{D\&A} - \text{CapEx} - \Delta \text{NOWC}$$

Question 50Financial statements, assets, inventory and cash-flow models

Which of the following formulas correctly defines the Quick Ratio (Acid-Test Ratio / 速动比率)?

  1. $\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventory} - \text{Prepayments}}{\text{Current Liabilities}}$ Correct answer.
  2. $\text{Quick Ratio} = \frac{\text{Total Assets}}{\text{Total Liabilities}}$
  3. $\text{Quick Ratio} = \frac{\text{Cash} + \text{Fixed Assets}}{\text{Current Liabilities}}$
  4. $\text{Quick Ratio} = \frac{\text{Current Assets} + \text{Long-Term Debt}}{\text{Shareholders' Equity}}$

Explanation

The Quick Ratio measures short-term liquidity by evaluating assets that can be converted to cash almost immediately without substantial loss in value. It excludes illiquid current assets such as Inventory (存货) and Prepayments (预付款项): $$\text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}} = \frac{\text{Cash} + \text{Trading Financial Assets} + \text{Accounts Receivable}}{\text{Current Liabilities}}$$