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

Two parties, Arvind Pharma Ltd. and Bhatia Labs Ltd., are negotiating a merger. Arvind's valuer says that price and value can differ. Which statement correctly distinguishes them?

Price is the amount actually agreed and paid in a transaction, whereas value is an estimate of worth derived using a method and assumptions. They can differ because of synergies, bargaining power and urgency, so they are not always identical.

  1. APrice is the amount actually agreed and paid in a transaction, while value is an estimate of worth based on a method and assumptionsCorrect
  2. BPrice and value are always identical in a negotiated deal
  3. CValue is what the buyer pays, price is the estimate by the valuer
  4. DPrice is calculated only from book value, value only from market capitalisation

Explanation

Value is a valuer's estimate of worth under chosen assumptions and a standard of value; price is the actual consideration negotiated and paid, which may be above or below value due to synergies, bargaining strength or urgency. The other options reverse or confuse the terms.

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