Question

Add the present value of the existing tax shield on existing assets and the net realizable value of redundant assets, less redundant liabilities

a) Add the present value of the existing tax shield.
b) Subtract the net realizable value of redundant assets.
c) Subtract redundant liabilities.
d) Add the net realizable value of redundant assets.

Answer 1

To determine the valuation of business assets, add the present value of existing tax shields and the net realizable value of redundant assets, then subtract redundant liabilities.

Step-by-step explanation:

The question deals with the valuation of a company's assets and liabilities in the context of business finance. To determine the present value of the company's tax shields and assets, you need to take the following steps:

1. Add the present value of the existing tax shield on existing assets. This value represents the savings in taxes that a company can expect to receive from its allowable deductions from taxable income.
2. Add the net realizable value of redundant assets. Redundant assets are those not required in the company's ongoing operations and might be sold; their net realizable value is the estimated selling price in the ordinary course of business, less any costs expected to be incurred to make the sale.
3. Subtract redundant liabilities. These are obligations of the business that may no longer provide a future benefit or are in excess of what is needed for operations.

Thus, the correct approach integrates financial analysis tools, like the present discounted value, closely concerning the decision-making process in investments, whether in business or governmental policies.