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CMA Final · Strategic Performance Management and Business Valuation · Laws and Compliance in Business Valuation

Under the Registered Valuers Rules, a valuer's report on a company's equity is usually accompanied by disclosures. Aarav Industries has net assets (fair value) of Rs 90 crore after revaluation, and its income approach gives an equity value of Rs 120 crore. The valuer assigns weights of 25% to the asset approach and 75% to the income approach and must state the weighted value. What is the weighted equity value?

The weighted equity value is Rs 112.5 crore. It is computed as 25% of Rs 90 crore plus 75% of Rs 120 crore, which is 22.5 plus 90. Reversing the weights would give Rs 97.5 crore, which is the common mistake.

  1. ARs 112.5 croreCorrect
  2. BRs 105 crore
  3. CRs 97.5 crore
  4. DRs 120 crore

Explanation

Weighted value = 0.25 x 90 + 0.75 x 120 = 22.5 + 90 = 112.5 crore. Check: 120 - 0.25 x (120 - 90) = 112.5. Rs 97.5 crore results from reversing the weights (75% on assets).

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