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CMA Final · Strategic Performance Management and Business Valuation · Fundamentals of Business Valuation

In business valuation, the term 'premise of value' refers to:

Premise of value is the assumption about the circumstances under which a business is valued, such as a going concern or a liquidation basis. It frames the valuation and affects which methods and inputs are appropriate, unlike a discount rate or stake size.

  1. AThe assumption about the circumstances in which the business is valued, such as going concern or liquidationCorrect
  2. BThe discount rate applied to the projected cash flows of the business
  3. CThe accounting policy followed by the target company for inventory
  4. DThe percentage of equity that is being transferred in the transaction

Explanation

Premise of value describes the assumed circumstances of the valuation, for example going concern, orderly liquidation or forced liquidation. The discount rate is an input to a method, not a premise. Inventory policy and stake size relate to other aspects of valuation.

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