Canadian Income Taxation Planning
and Decision Making, 2025-2026
Edition by Bill Buckwold
Complete Chapter Solutions Manual
are included (Ch 1 to 23)
** Immediate Download
** Swift Response
** All Chapters included
** Cases included
,Table of Contents are given below
Chapter 1 Taxation—Its Role in Decision Making
Chapter 2 Fundamentals of Tax Planning
Chapter 3 Liability for Tax, Income Determination, and Administration of the Income
Tax System
Chapter 4 Income from Employment
Chapter 5 Income from Business
Chapter 6 The Acquisition, Use, and Disposal of Depreciable Property
Chapter 7 Income from Property
Chapter 8 Gains and Losses on the Disposition of Capital Property—Capital Gains
Chapter 9 Other Income, Other Deductions, and Special Rules for Completing Net
Income for Tax Purposes
Chapter 10 Individuals: Determination of Taxable Income and Taxes Payable
Chapter 11 Corporations—An Introduction
Chapter 12 Organization, Capital Structures, and Income Distributions of Corporations
Chapter 13 The Canadian-Controlled Private Corporation
Chapter 14 Multiple Corporations and Their Reorganization
Chapter 15 Partnerships
Chapter 16 Limited Partnerships and Joint Ventures
Chapter 17 Trusts
Chapter 18 Business Acquisitions and Divestitures—Assets versus Shares
Chapter 19 Business Acquisitions and Divestitures—Tax-Deferred Sales
Chapter 20 Domestic and International Business Expansion
Chapter 21 Tax Aspects of Corporate Financing
Chapter 22 Introduction to GST/HST
Chapter 23 Business Valuations
,Solutions Manual organized in reverse order, with the last chapter displayed first, to ensure
that all chapters are included in this document. (Complete Chapters included Ch23-1)
CHAPTER 23
BUSINESS VALUATIONS
SOLUTIONS TO REVIEW QUESTIONS
1. The key factor that influences the value of a going concern business is its income earning
potential. The essence of a business operation is that it consists of a number of assets
(both physical and intangible) that work together for the purpose of generating a long-term
stream of profits.
2. The earnings approach attempts to value a business by examining the expected profits that
can be generated from the entity's total assets working together. In other words, the
combined value of all of its assets is a function of their income generating potential. Valuing
a business by the earnings approach assumes that assets are acquired to be used in a
going concern business as opposed to being acquired for the purpose of resale at a profit.
Therefore, it is appropriate to use this method of valuation when it is anticipated that the
business sold will continue to operate as a going concern.
In comparison, the asset approach to valuations involves the separate valuation of each
individual asset within the entity. It assumes the asset's primary value is its expected selling
price rather than its contribution to generating business income. It, therefore, has limited
application. Normally, this method applies to the valuation of passive investments or a
corporation holding a group of passive investments. It may also be relevant for the valuation
of a business entity that will not be sold as a going concern due to inadequate profitability.
Keep in mind that an entity may have more than one type of activity within it. In valuing that
entity, it may be necessary to apply the earnings approach and the asset approach
separately to each activity.
3. The capitalization of earnings method establishes the total value of a business by
estimating the expected annual profits and capitalizing that amount based upon an
appropriate rate of return. For example, if anticipated profits are $50,000 annually and a
normal rate of return from investing in that type of business is 20%, the capitalized value of
the business is $250,000 ($50,000/.20). In other words, a price of $250,000 would yield a
20% return on investment. Both the determination of the expected future profits and the
appropriate rate of return required for the investment are extremely subjective.
Consequently, the value of a business as perceived by the vendor may vary considerably
from the value perceived by the purchaser.
4. The ability to generate a specific amount of future profits varies with each business.
Therefore, the risk of investing in different businesses also varies. The capitalization of
earnings method attempts to account for this risk through the capitalization rate or expected
rate of return. The acceptable rate of return that is required to compensate for the risk of
achieving the potential profits is referred to as the capitalization rate. A high-risk business
1
, requires a greater rate of return than a low risk business. For example, a high-risk business
with expected profits of $50,000 annually may dictate a rate of return of 30% to justify the
risk, resulting in a value of $167,000 ($50,000/.30). On the other hand, a low risk business
with the same expected profits may require only an 18% rate of return to justify the
investment, resulting in a value of $278,000 ($50,000/.18).
5. The capitalization rate, which reflects the relative risk of the investment, can also be
expressed in terms of an earnings multiple. For example, a business with potential profits
of $50,000 and a capitalization rate of 20% is valued at $250,000 ($50,000/.20). Notice that
the value of $250,000 is equivalent to five times the annual earnings of $50,000. Similarly,
a capitalization rate of 25% ($50,000/.25 = $200,000) is equivalent to four times annual
profits ($50,000 x 4 = $200,000). It is common to express the value of a business as an
earnings multiple rather than as a capitalization rate although both have the same effect. In
effect, the earnings multiple is simply an expression of the capitalization rate which is tied
to the relative risk of the business.
6. The capitalization rate reflects the degree of certainty of achieving future profits. As future
events cannot be anticipated with certainty, the process of establishing risk is extremely
subjective. In most cases, a decision-maker will not be comfortable with a specific rate, but
rather will attempt to establish the range of rates that most closely reflects the economic
realities of the business being evaluated. In establishing this range, the following types of
factors may be relevant:
• past history of profits achieved.
• market potential for products sold or services provided.
• the production capabilities and potential impact of technological changes on production
efficiency.
• availability of material supplies and skilled labour.
• the state of the competition.
• strength and depth of management.
• domestic and international economic trends, life cycle of primary products manufactured
and research and development capabilities.
7. The statement is not true. As a purchaser is acquiring a stream of future profits, it is
necessary to project the entity's earning capacity. Obviously, this process is speculative
and subject to inaccuracies. A review of past profits can be a relevant factor in estimating
the future. A mature business with a track record of proven profitability can project its profits
with greater confidence than a business in its early stages of growth. Therefore, in an
established business, the immediate past profits can be used for estimating future profits.
However, it is important to recognize that the use of historical profits in the valuation process
is only useful to the extent that they reflect future expectations. Historical profits often
represent only a starting point from which realistic projections can be made.
8. The stated historical profits may not reflect the actual profits from the business operation
and may include a number of items (revenues and expenses) which are unusual or
non-recurring. In addition, closely held private corporations often include a number of
2
and Decision Making, 2025-2026
Edition by Bill Buckwold
Complete Chapter Solutions Manual
are included (Ch 1 to 23)
** Immediate Download
** Swift Response
** All Chapters included
** Cases included
,Table of Contents are given below
Chapter 1 Taxation—Its Role in Decision Making
Chapter 2 Fundamentals of Tax Planning
Chapter 3 Liability for Tax, Income Determination, and Administration of the Income
Tax System
Chapter 4 Income from Employment
Chapter 5 Income from Business
Chapter 6 The Acquisition, Use, and Disposal of Depreciable Property
Chapter 7 Income from Property
Chapter 8 Gains and Losses on the Disposition of Capital Property—Capital Gains
Chapter 9 Other Income, Other Deductions, and Special Rules for Completing Net
Income for Tax Purposes
Chapter 10 Individuals: Determination of Taxable Income and Taxes Payable
Chapter 11 Corporations—An Introduction
Chapter 12 Organization, Capital Structures, and Income Distributions of Corporations
Chapter 13 The Canadian-Controlled Private Corporation
Chapter 14 Multiple Corporations and Their Reorganization
Chapter 15 Partnerships
Chapter 16 Limited Partnerships and Joint Ventures
Chapter 17 Trusts
Chapter 18 Business Acquisitions and Divestitures—Assets versus Shares
Chapter 19 Business Acquisitions and Divestitures—Tax-Deferred Sales
Chapter 20 Domestic and International Business Expansion
Chapter 21 Tax Aspects of Corporate Financing
Chapter 22 Introduction to GST/HST
Chapter 23 Business Valuations
,Solutions Manual organized in reverse order, with the last chapter displayed first, to ensure
that all chapters are included in this document. (Complete Chapters included Ch23-1)
CHAPTER 23
BUSINESS VALUATIONS
SOLUTIONS TO REVIEW QUESTIONS
1. The key factor that influences the value of a going concern business is its income earning
potential. The essence of a business operation is that it consists of a number of assets
(both physical and intangible) that work together for the purpose of generating a long-term
stream of profits.
2. The earnings approach attempts to value a business by examining the expected profits that
can be generated from the entity's total assets working together. In other words, the
combined value of all of its assets is a function of their income generating potential. Valuing
a business by the earnings approach assumes that assets are acquired to be used in a
going concern business as opposed to being acquired for the purpose of resale at a profit.
Therefore, it is appropriate to use this method of valuation when it is anticipated that the
business sold will continue to operate as a going concern.
In comparison, the asset approach to valuations involves the separate valuation of each
individual asset within the entity. It assumes the asset's primary value is its expected selling
price rather than its contribution to generating business income. It, therefore, has limited
application. Normally, this method applies to the valuation of passive investments or a
corporation holding a group of passive investments. It may also be relevant for the valuation
of a business entity that will not be sold as a going concern due to inadequate profitability.
Keep in mind that an entity may have more than one type of activity within it. In valuing that
entity, it may be necessary to apply the earnings approach and the asset approach
separately to each activity.
3. The capitalization of earnings method establishes the total value of a business by
estimating the expected annual profits and capitalizing that amount based upon an
appropriate rate of return. For example, if anticipated profits are $50,000 annually and a
normal rate of return from investing in that type of business is 20%, the capitalized value of
the business is $250,000 ($50,000/.20). In other words, a price of $250,000 would yield a
20% return on investment. Both the determination of the expected future profits and the
appropriate rate of return required for the investment are extremely subjective.
Consequently, the value of a business as perceived by the vendor may vary considerably
from the value perceived by the purchaser.
4. The ability to generate a specific amount of future profits varies with each business.
Therefore, the risk of investing in different businesses also varies. The capitalization of
earnings method attempts to account for this risk through the capitalization rate or expected
rate of return. The acceptable rate of return that is required to compensate for the risk of
achieving the potential profits is referred to as the capitalization rate. A high-risk business
1
, requires a greater rate of return than a low risk business. For example, a high-risk business
with expected profits of $50,000 annually may dictate a rate of return of 30% to justify the
risk, resulting in a value of $167,000 ($50,000/.30). On the other hand, a low risk business
with the same expected profits may require only an 18% rate of return to justify the
investment, resulting in a value of $278,000 ($50,000/.18).
5. The capitalization rate, which reflects the relative risk of the investment, can also be
expressed in terms of an earnings multiple. For example, a business with potential profits
of $50,000 and a capitalization rate of 20% is valued at $250,000 ($50,000/.20). Notice that
the value of $250,000 is equivalent to five times the annual earnings of $50,000. Similarly,
a capitalization rate of 25% ($50,000/.25 = $200,000) is equivalent to four times annual
profits ($50,000 x 4 = $200,000). It is common to express the value of a business as an
earnings multiple rather than as a capitalization rate although both have the same effect. In
effect, the earnings multiple is simply an expression of the capitalization rate which is tied
to the relative risk of the business.
6. The capitalization rate reflects the degree of certainty of achieving future profits. As future
events cannot be anticipated with certainty, the process of establishing risk is extremely
subjective. In most cases, a decision-maker will not be comfortable with a specific rate, but
rather will attempt to establish the range of rates that most closely reflects the economic
realities of the business being evaluated. In establishing this range, the following types of
factors may be relevant:
• past history of profits achieved.
• market potential for products sold or services provided.
• the production capabilities and potential impact of technological changes on production
efficiency.
• availability of material supplies and skilled labour.
• the state of the competition.
• strength and depth of management.
• domestic and international economic trends, life cycle of primary products manufactured
and research and development capabilities.
7. The statement is not true. As a purchaser is acquiring a stream of future profits, it is
necessary to project the entity's earning capacity. Obviously, this process is speculative
and subject to inaccuracies. A review of past profits can be a relevant factor in estimating
the future. A mature business with a track record of proven profitability can project its profits
with greater confidence than a business in its early stages of growth. Therefore, in an
established business, the immediate past profits can be used for estimating future profits.
However, it is important to recognize that the use of historical profits in the valuation process
is only useful to the extent that they reflect future expectations. Historical profits often
represent only a starting point from which realistic projections can be made.
8. The stated historical profits may not reflect the actual profits from the business operation
and may include a number of items (revenues and expenses) which are unusual or
non-recurring. In addition, closely held private corporations often include a number of
2
