- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Valuation
- Learning Module 27. Private Company Valuation
- Subject 4. Valuation Approaches, Earnings Normalization and Cash Flow Estimation Issues
CFA Practice Question
You have been asked to value ABC, Inc, a private pharmaceutical company. You found that ABC owns and uses an office building. It cost the company $100,000 as operating expenses last year. The depreciation cost for the building was $150,000. You have decided to remove the office building from the income statement and determined the rental charge would be $200,000. The normalized income would be:
A. reduced by $50,000.
B. increased by $50,000.
C. reduced by $100,000.
Explanation: You should remove 2 expense items ($100,000 and $150,000) and add 1 item ($200,000), resulting an increased income of $50,000.
User Contributed Comments 1
| User | Comment |
|---|---|
| darbyland | removing 2 expense items ($250T) and adding 1 expense item ($200T) = increase of $50T |