General Studies · Project Finance and Asset Valuation
In the context of evaluating a 'Going Concern' business that generates consistent cash flows, which valuation method is considered the most appropriate for a bank to determine enterprise value for long-term project finance, and how does it differ from the replacement cost method?
- 1The Book Value Method, which uses the historical cost of the asset as recorded in the balance sheet, adjusted only for annual depreciation.
- 2The Liquidation Value Method, which estimates the price the asset would fetch in a distressed sale, providing a worst-case scenario for recovery.
- 3The Discounted Cash Flow (DCF) Method, which calculates the present value of expected future earnings, whereas the replacement cost method focuses on the current price of creating an identical asset.✓
- 4The Market Comparison Method, which relies on the recent sale prices of similar assets in the same location to estimate the current market value.
Correct answer
The Discounted Cash Flow (DCF) Method, which calculates the present value of expected future earnings, whereas the replacement cost method focuses on the current price of creating an identical asset.
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