2002 Paper 9 Question 5
Business Studies
(a) Explain the differences between
(i) credit and debit;
(ii) cash-flow and profit & loss statements;
(iii) equity and debt finance;
(iv) NPV and IRR;
(v) asset and DCF based valuation.
[2 marks each]
(b) A certain small software company has assets of about £100K (not including
development work-in-progress), and an average cash-flow of about £15,000 per
month, with a net profit of around £2000 per month. They are developing, but
have not yet completed, a new graphical search engine into which they have
invested about £100K of design and programmer time. The founders have
invested about £150K, mostly in equity, and there is a long term debenture
of £100K.
Provide a range of valuations for the company. Include notes explaining your
assumptions and the basis for each valuation. [10 marks]