Question

Which of the following is a disadvantage of using the comparable-multiple method to value a firm?...

Which of the following is a disadvantage of using the comparable-multiple method to value a firm?
A) It reflects what the market is willing to pay for a comparable firm or a set of comparable firms.
B) It does not take long-term profitability and growth into consideration.
C) It can be used when the firm is not in steady state.
D) It is simple and convenient to use.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

A)

Market multiples can diverge a lot from the investment value , which we cannot know by looking at relative multiples only . For eg. if the overall industry is undervalued, we would not know simply by comparing multiples of similar companies what is the approproate value as the valuation will be depressed than the actual intrinsic value of the company. Similarly if sector multiples are too high the value derived will be too high than the intrinsic or true value of the company.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An analyst has computed a ratio of firm value (which he has defined as the mar-...
An analyst has computed a ratio of firm value (which he has defined as the mar- ket value of equity plus long-term debt minus cash) to earnings after all interest expenses and taxes. a. Explain why this ratio is not consistently estimated. b. Explain why this might be a problem when comparing firms using this multiple.
Which of the following statements is true? a A market failure occurs when the market produces...
Which of the following statements is true? a A market failure occurs when the market produces the “wrong” amount of a good or service, or fails to provide any at all. b When there is market failure, resources are either over-allocated or under-allocated to the production of the good. c Supply-side market failures occur when it is impossible to charge all consumers, or even any consumer of the good, the price for the good. As a result, firms are not...
A disadvantage of both proprietorships and partnerships is that a. in each, profit is taxed twice,...
A disadvantage of both proprietorships and partnerships is that a. in each, profit is taxed twice, as the income of the firm and the income of the owners. b. the owners cannot hire managers to help run the firms. c. the firms cannot pay dividends. d. the owners have unlimited liability for the debts of the firms. ____   27.   A corporation's income is taxed a. immediately after it is deposited in the bank. b. only before it is distributed to...
Which of the following is true about the P/E ratio of a firm?​ a. ​If a...
Which of the following is true about the P/E ratio of a firm?​ a. ​If a firm's P/E ratio is 8, then, it would take 8 years for an investor to double his or her initial investment. b. ​If a company's P/E ratio is too high relative to that of similar firms, its earnings have not been fully captured in the existing stock value. c. ​The higher the P/E ratio, the less investors are willing to pay for each dollar...
33.If a firm has diseconomies of scale a.If it is in a very competitive industry it...
33.If a firm has diseconomies of scale a.If it is in a very competitive industry it would be advisable for it to scale back its production level in the long run b.Average total cost is rising as the firm expands c.Both a and b d.Neither a nor b 34.In a perfectly competitive industry a.Firms produce differentiated “ heterogeneous” products b.Legal barriers to entry prevent the market from being monopolized c.Firms must get a patient before producing the product d.None of...
1.Which of the following combinations can explain the logical inconsistency in the CAPM? A. Passive portfolio...
1.Which of the following combinations can explain the logical inconsistency in the CAPM? A. Passive portfolio strategy and the efficiency of the market portfolio B. Active portfolio strategy and the minimum variance of the portfolio C. Passive portfolio strategy and the capital allocation line D. Active portfolio strategy and the investment opportunity set 2.Firms with higher expected growth rates tend to have P/E ratio that are…….the P/E ratio of firms with lower expected growth rates A. Higher than B. Equal...
Question 19 (1 point) Which of the following statements is true in the simple circular flow...
Question 19 (1 point) Which of the following statements is true in the simple circular flow model? a Income flows into the households as a result of their supply of resources to firms. b Since there is no saving in this simple model, households use all their income for spending in goods and services supplied by firms. c When firms sell their goods, the money they receive is called revenue, which is used to pay for the resources firms hire....
Firms enter foreign markets for many reasons. Successful entry depends on matching the firm's strategy and...
Firms enter foreign markets for many reasons. Successful entry depends on matching the firm's strategy and competencies to the right kind of market conditions. Choosing which foreign markets to enter will have long-term implications for the success of any business. Firms have three basic decisions to make: which markets to enter, when to enter those markets, and on what scale they should enter the market. There is no single, correct answer for all firms. Each firm must decide the best...
You have been asked by an investor to value a restaurant. Last year, the restaurant earned...
You have been asked by an investor to value a restaurant. Last year, the restaurant earned pretax operating income of $350,000. Income has grown 5% annually during the last five years, and it is expected to continue growing at that rate into the foreseeable future. The annual change in working capital is $30,000, and capital spending for maintenance exceeded depreciation in the prior year by $20,000. Both working capital and the excess of capital spending over depreciation are projected to...
Forecasting and Estimating Share Value Using the DCF Model Following are the income statement and balance...
Forecasting and Estimating Share Value Using the DCF Model Following are the income statement and balance sheet for Intel Corporation. INTEL CORPORATION Consolidated Statements of Income Year Ended (In millions) Dec. 25, 2010 Dec. 26, 2009 Dec. 27, 2008 Net revenue $ 43,623 $ 35,127 $ 37,586 Cost of sales 15,132 15,566 16,742 Gross margin 28,491 19,561 20,844 Research and development 6,576 5,653 5,722 Marketing, general and administrative 6,309 7,931 5,452 Restructuring and asset impairment charges -- 231 710 Amortization...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT