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CS Professional · Corporate Restructuring, Valuation and Insolvency · Overview of Business Valuation

A valuer is asked to value Kaveri Foods Ltd as of 31 March. Management hands over projections that are far more optimistic than the company's past results and industry trends. What should the valuer do?

The valuer should test management's projections against historical results and industry evidence, then adjust them or clearly document why they are relied upon. Blind acceptance abandons professional judgment, while discarding them or averaging arbitrarily lacks a supportable basis for the conclusion.

  1. ATest the projections against historical performance and market evidence and adjust or document the basis for relianceCorrect
  2. BAccept them, since management knows the business best
  3. CDiscard all projections and use only the book value
  4. DAverage the projections with the previous year's profit without explanation

Explanation

A valuer may rely on management information but must apply professional judgment, corroborate it with historical data and industry evidence, and document any adjustment. Blind acceptance ignores that duty. Dropping projections entirely or arbitrarily averaging them lacks a reasoned basis.

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