Hi guys “For its core equity fund, Guardian Capital selects financially sound companies that are expected to generate significant positive free cash flow from core business operations within a multiyear forecast horizon.”
With respect to Statement 4, which measure of value is most relevant for the analyst of the fund described?
Liquidation value
Investment value
Going-concern value
answer is going concern. I chose investment value after some deliberation. I assumed that because these companies were being picked for investment in the fund that investors will subscribe to what would be of interest is the investment value. i can see why its going concern but my question is how should the statement have been rephrased for the answer to have been investment value.
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My guess would be if it referenced the company would experience synergies through a merger/acquisition then investment value may be appropriate. Investment value is the value to a particular strategic buyer and may value the company higher than it otherwise would have been by someone who is not a strategic buyer and would not experience synergies.
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Drockk93 is right - the key to distinguishing whether an investment will be classified as investment value or not is to verify if there are some benefits regarding the investment. Why? Because investors will be willing to pay a premium to original price because there will be some benefits in cash flows (reduced costs or greater market share that allows greater margins).
If you are simply adding a company into your portfolio (without synergies), then you would not be willing to pay premium because there would be no side benefits.
Hope it helps.
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that helps. thanks very much guys.
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